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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2016~~2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-55409

QVC, Inc.

(Exact name of Registrant as specified in its charter)



State of Delaware (State or other jurisdiction of incorporation or organization)	23-2414041 (I.R.S. Employer Identification Number)

1200 Wilson Drive West Chester, Pennsylvania (Address of principal executive offices)	19380 (Zip Code)

Registrant's telephone number, including area code: (484) 701-1000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated ~~filer"~~filer," "smaller reporting company" and ~~"smaller reporting~~"emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x ~~(do not check if~~ ~~smaller reporting company)~~	Smaller reporting company o	Emerging growth company o
(do not check if smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

None of the voting stock of the registrant is held by a non-affiliate of the registrant. There is no publicly traded market for any class of voting stock of the registrant. There is one holder of record of ~~our~~the registrant's equity, Liberty QVC Holding, LLC, an indirect wholly-owned subsidiary of Liberty Interactive Corporation.

QVC, Inc.

~~2016~~2017 QUARTERLY REPORT ON FORM 10-Q

Table of Contents

Item 1. Financial Statements

QVC, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	September 30,			December 31,		September 30,			December 31,
(in millions, except share amounts)	2016			2015		2017			2016
Assets
Current assets:
Cash and cash equivalents	$	319		327		$	343		284
Restricted cash	11			11		11			10
Accounts receivable, less allowance for doubtful accounts of $90 at September 30, 2016 and $86 at December 31, 2015	794			1,370
Accounts receivable, less allowance for doubtful accounts of $84 at September 30, 2017 and $97 at December 31, 2016						888			1,246
Inventories	1,123			929		1,164			950
Prepaid expenses and other current assets	50			42		55			46
Total current assets	2,297			2,679		2,461			2,536
Property and equipment, net of accumulated depreciation of $1,045 at September 30, 2016 and $941 at December 31, 2015	1,087			1,002
Cable and satellite television distribution rights, net	205			339
Property and equipment, net of accumulated depreciation of $1,161 at September 30, 2017 and $1,004 at December 31, 2016						998			1,031
Television distribution rights, net						78			183
Goodwill	5,069			5,035		5,066			4,995
Other intangible assets, net	2,793			2,936		2,599			2,738
Other noncurrent assets	87			67		61			62
Total assets	$	11,538		12,058		$	11,263		11,545
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	13		9		$	17		14
Accounts payable-trade	637			658		726			678
Accrued liabilities	626			872		630			769
Total current liabilities	1,276			1,539		1,373			1,461
Long-term portion of debt and capital lease obligations	5,254			5,393		5,073			5,275
Deferred income taxes	750			827		730			778
Other long-term liabilities	153			181		127			136
Total liabilities	7,433			7,940		7,303			7,650
Equity:
QVC, Inc. stockholder's equity:
Common stock, $0.01 par value, 1 authorized share	—			—		—			—
Additional paid-in capital	6,842			6,827		6,867			6,851
Accumulated deficit	(2,740		)	(2,669	)	(2,904		)	(2,832	)
Accumulated other comprehensive loss	(122		)	(140	)	(118		)	(224	)
Total QVC, Inc. stockholder's equity	3,980			4,018		3,845			3,795
Noncontrolling interest	125			100		115			100
Total equity	4,105			4,118		3,960			3,895
Total liabilities and equity	$	11,538		12,058		$	11,263		11,545

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three months ended September 30,					Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
(in millions)	2016			2015		2016		2015		2017			2016		2017		2016
Net revenue	$	1,948		2,007		6,024		5,943		$	2,010		1,948		5,954		6,024
Cost of goods sold	1,251			1,266		3,816		3,721		1,282			1,251		3,755		3,816
Gross profit	697			741		2,208		2,222		728			697		2,199		2,208
Operating expenses:
Operating	140			144		428		424		145			140		419		428
Selling, general and administrative, including stock-based compensation	172			176		533		536		180			172		489		533
Depreciation	38			33		103		101		38			38		116		103
Amortization	116			108		345		341		91			116		324		345
	466			461		1,409		1,402		454			466		1,348		1,409
Operating income	231			280		799		820		274			231		851		799
Other (expense) income:
Equity in losses of investee	(2		)	(3	)	(4	)	(7	)	—			(2	)	(3	)	(4	)
Interest expense, net	(52		)	(49	)	(159	)	(158	)	(54		)	(52	)	(165	)	(159	)
Foreign currency gain	5			12		27		11
Loss on extinguishment of debt	—			—		—		(21	)
Foreign currency gain (loss)										4			5		(6	)	27
	(49		)	(40	)	(136	)	(175	)	(50		)	(49	)	(174	)	(136	)
Income before income taxes	182			240		663		645		224			182		677		663
Income tax expense	(66		)	(86	)	(244	)	(243	)	(58		)	(66	)	(225	)	(244	)
Net income	116			154		419		402		166			116		452		419
Less net income attributable to the noncontrolling interest	(9		)	(8	)	(28	)	(25	)	(12		)	(9	)	(33	)	(28	)
Net income attributable to QVC, Inc. stockholder	$	107		146		391		377		$	154		107		419		391

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three months ended September 30,					Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
(in millions)	2016			2015		2016		2015		2017			2016		2017		2016
Net income	$	116		154		419		402		$	166		116		452		419
Foreign currency translation adjustments, net of tax	(3		)	3		36		(77	)	28			(3	)	110		36
Total comprehensive income	113			157		455		325		194			113		562		455
Comprehensive income attributable to noncontrolling interest	(11		)	(11	)	(46	)	(25	)	(12		)	(11	)	(37	)	(46	)
Comprehensive income attributable to QVC, Inc. stockholder	$	102		146		409		300		$	182		102		525		409

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine months ended September 30,					Nine months ended September 30,
(in millions)	2016			2015		2017			2016
Operating activities:
Net income	$	419		402		$	452		419
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses of investee	4			7		3			4
Deferred income taxes	(68		)	(78	)	(73		)	(68	)
Foreign currency gain	(27		)	(11	)
Foreign currency loss (gain)						6			(27	)
Depreciation	103			101		116			103
Amortization	345			341		324			345
Noncash interest	5			6
Loss on extinguishment of debt	—			21
Change in fair value of financial instruments and noncash interest						5			5
Stock-based compensation	24			24		23			24
Change in other long-term liabilities	—			17		(7		)	—
Effects of changes in working capital items	44			(37	)	58			44
Net cash provided by operating activities	849			793		907			849
Investing activities:
Capital expenditures	(140		)	(132	)	(83		)	(140	)
Expenditures for cable and satellite television distribution rights	(8		)	(48	)
Expenditures for television distribution rights						(35		)	(8	)
Changes in other noncurrent assets	(2		)	(1	)	(2		)	(2	)
Other investing activities	(3		)	2		—			(3	)
Net cash used in investing activities	(153		)	(179	)	(120		)	(153	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,300		)	(1,565	)	(1,791		)	(1,300	)
Principal borrowings of debt from senior secured credit facility	1,048			1,470		1,574			1,048
Payment of debt origination fees	(2		)	(3	)	—			(2	)
Payment of bond premium fees	—			(18	)
Dividends paid to Liberty	(427		)	(444	)
Dividends paid to Liberty Interactive Corporation						(491		)	(427	)
Dividends paid to noncontrolling interest	(21		)	(20	)	(22		)	(21	)
Other financing activities	(9		)	(14	)	(10		)	(9	)
Net cash used in financing activities	(711		)	(594	)	(740		)	(711	)
Effect of foreign exchange rate changes on cash and cash equivalents	7			(4	)	12			7
Net (decrease) increase in cash and cash equivalents	(8		)	16
Net increase (decrease) in cash and cash equivalents						59			(8	)
Cash and cash equivalents, beginning of period	327			347		284			327
Cash and cash equivalents, end of period	$	319		363		$	343		319
Effects of changes in working capital items:
Decrease in accounts receivable	$	583		319		$	369		583
Increase in inventories	(192		)	(298	)	(191		)	(192	)
Increase in prepaid expenses and other current assets	(14		)	(5	)	(4		)	(14	)
(Decrease) increase in accounts payable-trade	(40		)	84
Increase (decrease) in accounts payable-trade						20			(40	)
Decrease in accrued liabilities and other	(293		)	(137	)	(136		)	(293	)
Effects of changes in working capital items	$	44		(37	)	$	58		44

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statement of Equity

(unaudited)


	Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity		Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
(in millions, except share data)	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity		Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
Balance, December 31, 2015	1	$	—	6,827		(2,669	)	(140	)	100		4,118
Balance, December 31, 2016														1	$	—	6,851		(2,832	)	(224	)	100		3,895
Net income	—	—		—		391		—		28		419		—	—		—		419		—		33		452
Foreign currency translation adjustments, net of tax	—	—		—		—		18		18		36		—	—		—		—		106		4		110
Dividends paid to Liberty and noncontrolling interest and other	—	—		—		(427	)	—		(21	)	(448	)
Impact of tax liability allocation and indemnification agreement with Liberty	—	—		—		(35	)	—		—		(35	)
Dividends paid to Liberty Interactive Corporation and noncontrolling interest and other														—	—		—		(491	)	—		(22	)	(513	)
Impact of tax liability allocation and indemnification agreement with Liberty Interactive Corporation														—	—		3		—		—		—		3
Withholding taxes on net share settlements of stock-based compensation	—	—		(9	)	—		—		—		(9	)	—	—		(10	)	—		—		—		(10	)
Stock-based compensation	—	—		24		—		—		—		24		—	—		23		—		—		—		23
Balance, September 30, 2016	1	$	—	6,842		(2,740	)	(122	)	125		4,105
Balance, September 30, 2017														1	$	—	6,867		(2,904	)	(118	)	115		3,960

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

QVC, Inc. and its consolidated subsidiaries ("QVC" or the "Company") is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.

In the United States ("U.S."), QVC's televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC2 (f/k/a QVC Plus) and Beauty iQ. The Company's U.S. programming is ~~distributed~~also available on QVC.com, QVC's U.S. website; mobile applications via ~~its nationally~~streaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, etc.).

QVC believes that the Company's digital platforms complement the Company's televised shopping ~~program 24 hours per day, 364 days per year. Internationally,~~programs by allowing consumers to purchase a wide assortment of goods offered on QVC's ~~program services~~televised programs, as well as other products that are ~~based~~available only on the Company's digital platforms. The Company views e-commerce as a natural extension of the Company's business, allowing the Company to stream live video and offer on-demand video segments of items recently presented live on QVC's televised programs. The Company's digital platforms allow shoppers to browse, research, compare and perform targeted searches for products, control the order-entry process and conveniently access their QVC account.

QVC's international televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), ~~Italy, Japan, and France.~~

~~In Germany, QVC distributes its program 24 hours per day with 17 hours~~the Republic of live programming. In Japan, QVC distributes live programming 24 hours per day. In the U.K., QVC distributes its program 24 hours per day with 16 hours of live programming. In Italy, QVC distributes programming live for 17 hours per day on satellite and digital terrestrial television and an additional seven hours per day of recorded programming on satellite and seven hours per day of general interest programming on digital terrestrial television. On weekdays, QVC distributes shopping programming in France live for eight hours per day, and distributes an additional 14 hours per day of recorded programming and two hours per day of general interest programming. On weekends, QVC distributes shopping programming in France live for 12 hours per day, and distributes an additional 10 hours per day of recorded programming and two hours per day of general interest programming.

Historically, QVC reported its results on a country-by-country basis. During the year ended December 31, 2015, QVC began reporting its results based on two operating segments: QVC-US, which is comprised of our U.S. operations and QVC-International, which is comprised of our international operations in Germany, Japan, the U.K.,Ireland, Italy and France. ~~Refer~~In some of the countries where QVC operates, QVC's televised shopping programs are broadcast across multiple QVC channels: QVC Beauty & Style and QVC Plus in Germany and QVC Beauty, QVC Extra, QVC Style and QVC +1 in the U.K. The programming created for most of these markets is also available via streaming video on QVC's digital platforms. QVC's international business employs product sourcing teams who select products tailored to ~~note 11 for additional information.~~the interests of each local market.

The Company's Japanese operations ("QVC-Japan") are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui") for a television and multimedia retailing service in Japan. QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, QVC-Japan paid dividends to Mitsui of ~~$21~~$22 million and ~~$20~~$21 million, respectively.

The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. ~~Live programming is distributed 15 hours per day and recorded programming is distributed for nine hours per day.~~ This joint venture is accounted for as an equity method investment recorded as equity in losses of investee in the condensed consolidated statements of operations.

The Company is an indirect ~~wholly owned~~wholly-owned subsidiary of Liberty Interactive Corporation ("Liberty"), which owns interests in a broad range of digital commerce ~~businesses.~~businesses, and is attributed to Liberty's QVC Group. The QVC Group common stock (Nasdaq: QVCA and QVCB), tracks the ~~economic performance,~~ assets and liabilities of the QVC Group. The QVC Group tracks the Company, zulily, llc ~~(as of October 1, 2015)~~("zulily") and Liberty's 38% equity interest in HSN, Inc. ("HSN"), one of the Company's two closest televised shopping competitors, ~~along with~~ cash and certain liabilities. On July 6, 2017, Liberty announced plans to acquire the remaining interest in HSN, which would make it a wholly-owned subsidiary of Liberty following the closing. On April 4, 2017, Liberty entered into an agreement with General Communication, Inc. ("GCI"), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty, whereby Liberty will acquire GCI through a reorganization in which certain assets and liabilities attributed to Liberty’s Ventures Group will be contributed to GCI in exchange for a controlling interest in GCI. Liberty will then effect a tax-free separation of its controlling interest in the combined company, leaving QVC Group common stock as the only outstanding common stock of Liberty. Neither the proposed transactions involving GCI nor the acquisition of HSN is conditioned on the completion of the other, and no assurance can be given as to which of these transactions will be completed first. The QVC Group does not represent a separate legal entity; rather, it represents those businesses, assets and liabilities that are attributed to that group.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

On October 1, 2015, Liberty acquired all of the outstanding shares of zulily, inc. ~~("zulily")~~ (now known as zulily, llc) ~~and QVC declared and paid a dividend to Liberty in the amount of $910 million with funds drawn from the Company’s credit facility to support Liberty’s purchase.~~. zulily is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched each day for a limited time period. zulily is attributed to the QVC Group and the Company believes that its business is complementary to the Company. zulily is not part of the results of operations or financial position of QVC presented in these condensed consolidated financial statements. During each of the nine months ended September 30, 2017 and 2016, QVC and zulily engaged in multiple transactions relating to sales, sourcing of merchandise, marketing initiatives, ~~and~~ business advisory ~~services.~~services and software development. The gross value of these transactions totaled ~~less than~~approximately $7 million and $11 million, respectively, which did not have a material impact on QVC's financial position, results of operations, or liquidity.

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~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

~~Additionally, on~~On June 23, 2016, QVC amended and restated its senior secured credit facility (the "Third Amended and Restated Credit Agreement") increasing the revolving credit facility from $2.25 billion to $2.65 billion as explained further in note 6. The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or zulily. Under the terms of the Third Amended and Restated Credit Agreement, QVC and zulily are jointly and severally liable for all amounts borrowed on the $400 million tranche. In accordance with the accounting guidance for obligations resulting from joint and several liability arrangements, QVC will record a liability for amounts it has borrowed under the credit facility plus any additional amount it expects to repay on behalf of zulily. As of September 30, ~~2016,~~2017, there was ~~$55~~$300 million borrowed by zulily on the $400 million tranche of the ~~senior secured credit facility,~~Third Amended and Restated Credit Agreement, none of which the Company expects to repay on behalf of zulily.

QVC engages with CommerceHub, Inc. ("CommerceHub"), which was an approximately 99% owned subsidiary of Liberty prior to the completion of its spinoff from Liberty in July 2016, to handle communications between QVC and certain of its vendors for drop ship sales and returns. CommerceHub is not part of the results of operations or financial position of QVC presented in these condensed consolidated financial statements. During each of the nine months ended September 30, 2016, and 2015, QVC paid CommerceHub for the related services totaling less than $2 million, which did not have a material impact on QVC's financial position, results of operations, or liquidity. As of July 22, 2016, Liberty completed the spin-off of CommerceHub. As a result, Liberty and CommerceHub are now separate publicly traded companies.

The condensed consolidated financial statements include the accounts of QVC, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

The accompanying (a) condensed consolidated balance sheet as of December 31, ~~2015,~~2016, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in QVC's Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates include, but are not limited to, sales returns, uncollectible receivables, inventory obsolescence, depreciable lives of fixed assets, internally-developed software, valuation of acquired intangible assets and goodwill, income taxes and stock‑based compensation.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

On May 28, 2014, the Financial Accounting Standards Board ~~("FASB"~~(the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09,Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, ~~and~~ changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies principal versus agent considerations, in April 2016, the FASB issued ASU No. 2016-10,Identifying Performance Obligations and Licensing, which clarifies the identification of performance obligations and the implementation guidance for licensing, and in May 2016, the FASB issued ASU No. 2016-12,Narrow-Scope Improvements and Practical Expedients, which clarifies assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The updated guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or modified retrospective transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted only for fiscal years beginning after December 15, 2016. The Company has ~~started~~reviewed the applicable ASU and has selected the modified retrospective transition method. In addition, the Company expects to elect the practical expedient to not adjust the promised amount of consideration for the effects of a ~~preliminary assessment, but~~significant financing component when its payment terms are less than one year, as well as the practical expedient to exclude from the measurement of the transaction price sales and similar taxes collected from customers. To date, the Company has ~~not yet selected~~concluded it will recognize revenue at the time of shipment to its customers consistent with when title passes. This is a ~~transition method nor has it determined~~change from the ~~effect~~current practice whereby the Company recognizes revenue at the time of delivery to the customers and deferred revenue is recorded to account for the shipments in-transit. At the current time, the Company is continuing to evaluate the impact of the standard including its determination of whether the Company acts as principal or agent in certain vendor arrangements. The Company is also evaluating the impact of the standard on the presentation and timing of credit card income for its ~~ongoing~~QVC-branded credit card and its financial ~~reporting.~~

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~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

~~In April 2015, the FASB issued ASU No. 2015-05,~~ ~~Customer's Accounting for Fees Paid in a Cloud Computing Arrangement~~, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting forstatement disclosures, among other ~~software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract.~~areas. The Company has ~~adopted~~not quantified the effects of this ~~guidance as of January 1, 2016, and there was no significant effect~~pronouncement, but it is working through the relevant aspects to evaluate the quantitative effects of the ~~standard on~~new guidance. The Company plans to be able to quantify the effects of these ASU's no later than the fourth quarter of 2017 in its ~~financial reporting.~~annual report for the year ending December 31, 2017.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The new principle is part of the FASB’s simplification initiative and applies to entities that measure inventory using a method other than last-in, first-out (LIFO) or the retail inventory method. The ~~new standard is effective for the~~ Company ~~for fiscal years~~adopted this guidance as of January 1, 2017, and ~~interim periods beginning after December 15, 2016. The Company has determined~~ there iswas no significant effect of the standard on its ~~ongoing~~ financial reporting.

In January 2016, the FASB issued ASU No. 2016-01, Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments with readily determinable fair values (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s ongoing financial reporting.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which revises the accounting treatment related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for the Company beginning on January 1, 2019 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company ~~has not yet determined what~~is currently evaluating the ~~effects of adopting this ASU~~effect that the updated standard will behave on its ongoing financial reporting.

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Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ~~The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 with early adoption permitted.~~ The Company adopted this guidance in the third quarter of 2016. In accordance with the new guidance, excess tax benefits and tax deficiencies are recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize forfeitures as they occur rather than continue to estimate expected ~~forfeitures which resulted in an inconsequential effect to the condensed consolidated statement of operations for the nine months ended September 30, 2016.~~forfeitures. In addition, pursuant to the new guidance, excess tax benefits are classified as an operating activity on the condensed consolidated statements of cash flows. The recognition of excess tax benefits and deficiencies are applied prospectively from January 1, 2016. The presentation changes for excess tax benefits have been applied retrospectively in the condensed consolidated statements of cash flows resulting in $6 million of excess tax benefits for the nine months ended September 30, 2016 reclassified from cash flows from financing activities to cash flows from operating activities. Refer to the reclassification section below for additional detail of the adoption of this guidance.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues to reduce the diversity in practice for appropriate classification on the statement of cash flows. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company does not expect the adoption will have a material effect on ~~the~~its condensed consolidated financial statements.

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~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

In October 2016, the FASB issued ASU No. 2016-16, Income ~~taxes~~Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize at the transaction date the income tax consequences of intercompany asset ~~transfers.~~transfers other than inventory. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ~~We are~~The Company is currently evaluating the effect that the updated standard will have on ~~our~~its condensed consolidated financial statements and related disclosures.

~~Reclassifications~~

~~Certain prior period amounts~~In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption will have ~~been reclassified to conform with current period presentation.~~

~~For the three and nine month periods ended September 30, 2015 the Company has reclassified costs of $30 million and $93 million, respectively,~~a material effect on ~~the~~its condensed consolidated ~~statements~~financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the measurement for impairment by calculating the difference between the carrying amount and the fair value of ~~operations from operating to selling, general~~the reporting unit. The guidance is effective for fiscal years, and ~~administrative, including stock-based compensation due to continued convergence of broadcast and e-commerce operations which included programming, broadcasting, personnel and production costs.~~

~~For~~interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the three and nine month periods ended September 30, 2015 the Company has reclassified certain prior period amounts relating to the QVC-International segment disclosure to conform with the current period presentation. Refer to note 11 for additional information.

~~For the nine months ended September 30, 2015 the Company has reclassified excess tax benefit from stock-based compensation of approximately $13 million~~adoption will have a material effect on ~~the~~its condensed consolidated ~~statements of cash flows from other financing activities to accrued liabilities and other in relation to~~financial statements.

In May 2017, the ~~adoption of~~FASB issued ASU ~~2016-09,~~No. 2017-09, Compensation - Stock Compensation (Topic 718): ~~Improvements~~Scope of Modification Accounting, to ~~Employee Share-Based Payment Accounting~~.

~~(2) Cable~~provide clarity to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for all entities for annual periods, and ~~Satellite Television Distribution Rights, Net~~

~~Cable and satellite television distribution rights consisted of the following:~~

(in millions) September 30, 2016
December 31, 2015
Cable and satellite television distribution rights $ 2,277
2,259
Less accumulated amortization (2,072 ) (1,920 )
Cable and satellite television distribution rights, net $ 205
339

interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company ~~recorded amortization expense of $47 million and $45 million for~~does not expect the three months ended September 30, 2016 and 2015, respectively, related to cable and satellite television distribution rights. For the nine months ended September 30, 2016 and 2015, amortization expense for cable and satellite television distribution rights was $143 million and $140 million, respectively.

~~As of September 30, 2016, related amortization expense for each of the next five years ended December 31 was as follows (in millions):~~adoption will have a material effect on its condensed consolidated financial statements.

Remainder of 2016 $ 46
2017 125
2018 13
2019 9
2020 8

~~The decrease in future amortization expense in 2018 is primarily due to the end of affiliation agreement terms for contracts in place at the time of Liberty's acquisition of QVC in 2003.~~

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Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(2) Television Distribution Rights, Net

Television distribution rights consisted of the following:



(in millions)	September 30, 2017			December 31, 2016
Television distribution rights	$	2,348		2,279
Less accumulated amortization	(2,270		)	(2,096	)
Television distribution rights, net	$	78		183

The Company recorded amortization expense of $39 million and $47 million for the three months ended September 30, 2017 and 2016, respectively, related to television distribution rights. For the nine months ended September 30, 2017 and 2016, amortization expense for television distribution rights was $141 million and $143 million, respectively.As of September 30, 2017, related amortization expense for each of the next five years ended December 31 was as follows (in millions):



Remainder of 2017	$	11
2018	37
2019	16
2020	10
2021	3

(3) Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, ~~2016~~2017 were as follows:


(in millions)	QVC-U.S.		QVC-Germany	QVC-Japan	QVC-U.K.		QVC-Italy	Total	QVC-U.S.		QVC-Germany	QVC-Japan	QVC-U.K.	QVC-Italy	Total
Balance as of December 31, 2015	$	4,190	278	251	193		123	5,035
Balance as of December 31, 2016									$	4,190	267	258	161	119	4,995
Exchange rate fluctuations	—		6	47	(23	)	4	34	—		33	11	13	14	71
Balance as of September 30, 2016	$	4,190	284	298	170		127	5,069
Balance as of September 30, 2017									$	4,190	300	269	174	133	5,066

(4) Other Intangible Assets, Net

Other intangible assets consisted of the following:


	September 30, 2016					December 31, 2015				September 30, 2017					December 31, 2016
(in millions)	Gross cost		Accumulated amortization		Other intangible assets, net	Gross cost	Accumulated amortization		Other intangible assets, net	Gross cost		Accumulated amortization		Other intangible assets, net	Gross cost	Accumulated amortization		Other intangible assets, net
Purchased and internally developed software	$	682	(490	)	192	625	(418	)	207	$	696	(541	)	155	646	(466	)	180
Affiliate and customer relationships	2,408		(2,242	)	166	2,409	(2,115	)	294	2,416		(2,406	)	10	2,397	(2,274	)	123
Debt origination fees	8		(1	)	7	9	(2	)	7	8		(2	)	6	8	(1	)	7
Trademarks (indefinite life)	2,428		—		2,428	2,428	—		2,428	2,428		—		2,428	2,428	—		2,428
	$	5,526	(2,733	)	2,793	5,471	(2,535	)	2,936	$	5,548	(2,949	)	2,599	5,479	(2,741	)	2,738

The Company recorded amortization expense of ~~$69~~$52 million and ~~$63~~$69 million for the three months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively, related to other intangible assets. For the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, amortization expense for other intangible assets was $183 million and $202 million, ~~and $201 million,~~ respectively.

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Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

As of September 30, ~~2016,~~2017, the related amortization and interest expense for each of the next five years ended December 31 was as follows (in millions):


Remainder of 2016	$	71
2017	202
Remainder of 2017			$	25
2018	72		83
2019	16		47
2020	4		15
2021			1

The decrease in future amortization expense in 2018 is primarily due to the end of the useful lives of the affiliate and customer relationships in place at the time of Liberty's acquisition of QVC in 2003.

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~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

(5) Accrued Liabilities

Accrued liabilities consisted of the following:


(in millions)	September 30, 2016		December 31, 2015	September 30, 2017		December 31, 2016
Accounts payable non-trade	$	188	240	$	193	215
Accrued compensation and benefits	99		116	116		92
Allowance for sales returns				73		93
Deferred revenue	79		83	63		69
Allowance for sales returns	73		106
Sales and other taxes				50		62
Income taxes	55		116	40		120
Sales and other taxes	41		79
Accrued interest	41		58	37		58
Other	50		74	58		60
	$	626	872	$	630	769

(6) Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consisted of the following:

(in millions) September 30, 2016
December 31, 2015
3.125% Senior Secured Notes due 2019, net of original issue discount $ 399
399
5.125% Senior Secured Notes due 2022 500
500
4.375% Senior Secured Notes due 2023, net of original issue discount 750
750
4.85% Senior Secured Notes due 2024, net of original issue discount 600
600
4.45% Senior Secured Notes due 2025, net of original issue discount 599
599
5.45% Senior Secured Notes due 2034, net of original issue discount 399
399
5.95% Senior Secured Notes due 2043, net of original issue discount 300
300
Senior secured credit facility 1,570
1,815
Capital lease obligations 74
72
Build to suit lease obligation (1) 104
—
Less debt issuance costs, net (28 ) (32 )
Total debt 5,267
5,402
Less current portion (13 ) (9 )
Long-term portion of debt and capital lease obligations $ 5,254
5,393

~~(1) At December 31, 2015, the build to suit lease liability (note 7) was presented in other long term liabilities.~~



(in millions)	September 30, 2017			December 31, 2016
3.125% Senior Secured Notes due 2019, net of original issue discount	$	399		399
5.125% Senior Secured Notes due 2022	500			500
4.375% Senior Secured Notes due 2023, net of original issue discount	750			750
4.85% Senior Secured Notes due 2024, net of original issue discount	600			600
4.45% Senior Secured Notes due 2025, net of original issue discount	599			599
5.45% Senior Secured Notes due 2034, net of original issue discount	399			399
5.95% Senior Secured Notes due 2043, net of original issue discount	300			300
Senior secured credit facility	1,390			1,596
Capital lease obligations	74			69
Build to suit lease obligation	102			105
Less debt issuance costs, net	(23		)	(28	)
Total debt and capital lease obligations	5,090			5,289
Less current portion	(17		)	(14	)
Long-term portion of debt and capital lease obligations	$	5,073		5,275

Senior Secured Notes

All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to ~~the~~QVC's senior secured credit facility. The interest on all of QVC's senior secured notes is payable semi-annually.

On April 15, 2015, QVC completed the redemption of $500 million principal amount of its 7.375% Senior Secured Notes due 2020, whereby holders received consideration of $1,036.88 for each $1,000 of principal tendered. As a result of the redemption, the Company recorded an extinguishment loss in the condensed consolidated statements of operations of $21 million for the nine month period ended September 30, 2015.

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Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Senior Secured Credit Facility

On June 23, 2016, QVC entered into ~~a third amended~~the Third Amended and ~~restated senior secured credit agreement~~Restated Credit Agreement with zulily as borrowers (collectively, the “Borrowers”), which is a multi-currency facility that provides for a $2.65 billion revolving credit facility with a $300 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or zulily with an additional $50 million sub-limit for standby letters of ~~credit.~~credit (see notes 1 and 13). The remaining $2.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA for the most recent four fiscal quarter periods (the ~~“Consolidated~~“Combined Consolidated Leverage Ratio”). Borrowings that are ~~LIBOR~~London Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and 1.75% depending on the Borrowers’ Combined Consolidated Leverage Ratio. Because the calculation of the Combined Consolidated Leverage Ratio was revised to include zulily, the effective interest rate margins, on the date that the Third Amended and Restated Credit Agreement was entered into, decreased from the interest rate margins under the previous bank credit facility. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if zulily ceases to be controlled by Liberty, ~~Interactive Corporation,~~ all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020. Any amounts prepaid on the revolving facility may be reborrowed. Payment of loans may be accelerated following certain customary events of default. ~~The senior secured credit facility is secured by the capital stock of QVC.~~

QVC had ~~$1,024.8~~$950 million, ~~available under the terms of the senior secured credit facility at September 30, 2016,~~ including the remaining portion ~~available under~~of the $400 million tranche that zulily may also borrow ~~on.~~on, available under the terms of the Third Amended and Restated Credit Agreement at September 30, 2017. The interest rate on the ~~senior secured credit facility~~Third Amended and Restated Credit Agreement was ~~1.9%~~2.7% at September 30, ~~2016.~~2017.

The purpose of the amendment was to, among other things, extend the maturity of ~~our~~the Company's senior secured credit facility, ~~to June 23, 2021,~~ provide zulily the opportunity to borrow on the senior secured credit facility (see note 1), and lower the interest rate on borrowings. The payment and performance of the Borrowers’ obligations under the Third Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement). Further, the borrowings under the Third Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of the capital stock of QVC. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and zulily are also guaranteed by each of zulily’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of zulily’s equity interests.

The Third Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company and zulily and each of their respective restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; and limiting ~~QVC’s~~the Company’s consolidated leverage ratio and the Borrowers’ Combined Consolidated Leverage Ratio.

Interest Rate Swap Arrangements

During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement does not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, 2017, the fair value of the swap instrument was in a net asset position of approximately $2 million which ~~is defined~~was included in ~~QVC’s senior secured credit facility as QVC’s consolidated total debt~~other noncurrent assets.

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Notes to Adjusted OIBDA ratio for the most recent four fiscal quarter period; and limiting the borrowers’ combined consolidated leverage ratio, which is defined in QVC’s senior secured credit facility as QVC and zulily’s combined debt to Adjusted OIBDA ratio for the most recent four fiscal quarter period. The Company defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation).Condensed Consolidated Financial Statements (continued)

(unaudited)

Other Debt Related Information

QVC was in compliance with all of its debt covenants at September 30, ~~2016~~.2017.

During the quarter, there were no significant changes to QVC's debt credit ratings.

The weighted average rate applicable to all of the outstanding debt (excluding capital and build to suit leases) prior to amortization of bond discounts and related debt issuance costs was ~~3.8%~~4.1% as of September 30, ~~2016~~2017.

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~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

(7) Leases ~~and Transponder Service Arrangements~~

Future minimum payments under noncancelable operating leases and capital transponder leases with initial terms of one year or more and the lease related to the Company's ~~west coast~~California distribution center (build to suit lease) at September 30, ~~2016~~2017 consisted of the following:


(in millions)	Capital transponders		Operating leases	Build to suit lease	Capital Leases		Operating leases	Build to suit lease
Remainder of 2016	$	3	5	—
2017	12		20	5
Remainder of 2017					$	4	5	1
2018	15		17	6	16		18	6
2019	15		14	6	16		14	6
2020	11		10	6	13		11	6
2021					12		9	6
Thereafter	23		80	73	18		71	67
Total	$	79	146	96	$	79	128	92

The Company has entered into ~~thirteen~~fourteen separate capital lease agreements with transponder and transmitter network suppliers to transmit its signals in the U.S., Germany and France at an aggregate monthly cost of $1 million. Depreciation expense related to the ~~transponders~~capital leases was $3 million for ~~both~~each of the three months ended September 30, ~~2016~~2017 and ~~2015.~~2016. For the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, depreciation expense related to the ~~transponders~~capital leases was $8$9 million and ~~$10~~$8 million, respectively. Total future minimum capital lease payments of $79 million include $5 million of imputed interest. The transponder service agreements for our U.S. transponders expire between 2019 and 2023. The transponder and transmitter network service agreements for our international transponders expire between 2019 and ~~2024.~~2027.

Expenses for operating leases, principally for data processing equipment, facilities, satellite uplink service agreements and the ~~west coast~~California distribution center land, amounted to $6$5 million and $7$6 million for the three months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively. For the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, expenses for operating leases were ~~$18~~$17 million and ~~$19~~$18 million, respectively.

On July 2, 2015, QVC entered into a lease (the “Lease”) for a ~~west coast~~California distribution center. Pursuant to the Lease, the landlord built an approximately one million square foot rental building in Ontario, California (the “Premises”), and thereafter leased the Premises to QVC as its new ~~west coast~~California distribution center for an initial term of 15 years. Under the Lease, QVC is required to pay an initial base rent of approximately $6 million per year, increasing to approximately $8 million per year by the final year of the initial term, as well as all real estate taxes and other building operating costs. QVC also has an option to extend the term of the Lease for up to two consecutive terms of 10 years each.

QVC has the right to purchase the Premises and related land from the landlord by entering into an amended and restated agreement at any time during the twenty-fifth or twenty-sixth months of the Lease's initial term, which will occur in June and July of 2018, with a $10 million initial payment and annual payments of $12 million over a term of 13 years.

The Company concluded that it was the deemed owner (for accounting purposes only) of the Premises during the construction period under build to suit lease accounting. Building construction began in July of 2015. During the construction period, the Company recorded estimated project construction costs incurred by the landlord as a projects in progress asset and a corresponding long-term liability in ~~“Property~~Property and equipment, ~~net”~~net and ~~“Other~~Other long-term liabilities,” respectively, on its consolidated balance sheet. In addition, the Company paid for normal tenant improvements and certain structural improvements and recorded these amounts as part of the projects in progress asset. Upon completion of construction, the long-term liability was reclassified to debt. ~~As of September 30, 2016 the liability related to the west coast distribution center was approximately $104 million of which $87 million was incurred during the nine months ended September 30, 2016.~~

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Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

On August 29, 2016, the ~~west coast~~California distribution center ~~was~~ officially opened. The Company evaluated whether the Lease met the criteria for "sale-leaseback" treatment under U.S. GAAP and concluded that it did not. Therefore, the Company ~~will treat~~treats the Lease as a financing obligation and lease payments ~~will be~~are attributed to: (1) a reduction of the principal financing obligation; (2) imputed interest expense; and (3) land lease expense representing an imputed cost to lease the underlying land of the Premises. In addition, the building asset ~~will be~~is being depreciated over its estimated useful life of 20 years. Although the Company ~~will~~did not begin making monthly lease payments pursuant to the Lease until February 2017, the portion of the lease obligations allocated to the land ~~is being~~has been treated for accounting purposes as an operating lease that commenced in 2015. If the Company does not exercise its right to purchase the Premises and related land, the Company will derecognize both the net book values of the asset and the financing obligation at the conclusion of the lease term.

(8) Income Taxes

The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant unusual items that will be separately reported ~~or reported net of their related tax effect~~ are individually computed and recognized in the interim period in which those items occur.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on the prior quarters is included in the tax expense for the current quarter.

For the three months ended September 30, ~~2016,~~2017, the Company recorded a tax provision of ~~$66~~$58 million, which represented an effective tax rate of ~~36.3%~~25.9%. For the nine months ended September 30, ~~2016~~2017, the Company recorded a tax provision of ~~$244~~$225 million, which represented an effective tax rate of ~~36.8%~~33.2%. These rates differ from the U.S. federal income tax rate of 35.0% due primarily to the impact of discrete permanent differences related to foreign currency losses realized for tax purposes offset by state tax expense.

QVC is party to ongoing discussions with the Internal Revenue Service under the Compliance Assurance Process audit program. The Company files Federal tax returns on a consolidated basis with its parent company, Liberty. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of September 30, ~~2016,~~2017, the income tax returns of the Company, or one of its subsidiaries, ~~was~~were under examination in Germany for 2012 through 2014 and the U.K. for 2015. In addition, as of September 30, 2017, income tax returns of the Company, or one of its subsidiaries, were under examination in California, New York ~~City,~~State, and Pennsylvania as well as in Germany and the U.K. The Company has received assessments related to an examination in Germany. The Company believes that any amounts ultimately paid in connection with the assessments will be creditable against its U.S. federal tax liability.Pennsylvania.

The Company is a party to a Tax Liability Allocation and Indemnification Agreement (the “Tax Agreement”) with Liberty. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Liberty for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Liberty an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Liberty, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution.

The ~~amounts~~amount of the tax-related balances due tofrom Liberty at September 30, ~~2016 and~~2017 were $3 million. The amount of tax related balances due to Liberty at December 31, ~~2015~~2016 were ~~$13 million and $71 million, respectively, and~~$75 million. These amounts were included in accrued liabilities in the accompanying condensed consolidated balance sheets.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(9) Commitments and Contingencies

The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible the Company may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that the amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.

Network and information systems, including the Internet and telecommunication systems, third party delivery services and other technologies are critical to our business activities. Substantially all our customer orders, fulfillment and delivery services are dependent upon the use of network and information systems, including the use of third party telecommunication and delivery service providers. If information systems including the Internet or telecommunication services are disrupted, or if the third party delivery services experience a disruption in their transportation delivery services, we could face a significant disruption in fulfilling our customer orders and shipment of our products. We have active disaster recovery programs in place to help mitigate risks associated with these critical business activities.

(10) Financial Instruments and Fair Value Measurements

For assets and liabilities required to be reported or disclosed at fair value, U.S. GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs, other than quoted market prices included within Level 1, are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

The Company's assets and liabilities measured or disclosed at fair value were as follows:


			Fair value measurements at September 30, 2016 using					Fair value measurements at September 30, 2017 using
(in millions)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Current assets:
Cash equivalents	$	125	125	—	—	$	88	88	—	—
Net Investment hedge	1		—	1	—
Noncurrent assets:
Interest rate swap arrangements						2		—	2	—
Long-term liabilities:
Debt (note 6)	5,159		—	5,159	—	5,044		—	5,044	—


			Fair value measurements at December 31, 2015 using					Fair value measurements at December 31, 2016 using
(in millions)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Current assets:
Cash equivalents	$	218	218	—	—	$	113	113	—	—
Net investment hedge	3		—	3	—
Noncurrent assets:
Interest rate swap arrangements						2		—	2	—
Long-term liabilities:
Debt (note 6)	5,189		—	5,189	—	5,092		—	5,092	—

The majority of the Company's Level 2 financial liabilities are debt instruments with quoted market prices that are not considered to be traded on "active markets," as defined in U.S. GAAP. Accordingly, the financial instruments are reported in the foregoing tables as Level 2 fair value instruments.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

~~QVC entered into a Euro 500 million basis swap as a hedge of a net investment in a foreign subsidiary during~~During the fourth quarter of 2015 and the underlying derivative matured on March 15, 2016. The purpose of this hedge was to protect QVC's investment in the foreign subsidiary against the variability of the U.S. dollar and Euro exchange rate. The Company entered into a similar hedge of the same net investment in a foreign subsidiary effective March 15, 2016 which subsequently matured on September 15, 2016. Effective September 15, 2016, the Company entered into a foreign exchange forward contract with the same purpose as the previous hedges. The forward contract entails QVC's sale of Euro 500 million at a forward rate which matures onyear ended December 19, 2016. The gain or loss is and will be recognized in other comprehensive income and is classified as Level 2 in the table above. No amount of the gain or loss has been reclassified into earnings as of the balance sheet date.

~~On June 15,~~31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement did not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, ~~2016,~~2017, the fair value of the swap instrument was in a net asset position of ~~less than $1~~$2 million which ~~was~~is included in other noncurrent assets.

(11) Information about QVC's Operating Segments

~~During the year ended December 31, 2015, QVC began reporting its results based on~~The Company has identified two reportable operating segments: QVC-U.S. and ~~QVC-International,~~QVC-International. Both operating segments are retailers of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised-shopping programs as ~~a result of~~well as via the ~~One Q Reorganization Plan ("One Q"). The One Q organizational structure is intended to allow the Company to better leverage its global scale~~Internet and ~~capabilities, to enhance its competitive position and to create operational efficiencies. Beginning~~mobile applications in ~~the first quarter of 2016, QVC began allocating~~ certain additional corporate costs for management reporting purposes, which were historically included in its QVC-U.S. segment, to the QVC-International segment. These management cost allocations are related to certain functions such as merchandising, commerce platforms, information technology, human resources, legal, finance, brand and communications, corporate development and administration that support all of QVC’s operations. For the three and nine months ended September 30, 2016, these costs totaled approximately $8 million and $24 million, respectively.markets.

QVC's chief operating decision maker ("CODM") is QVC's Chief Executive Officer. QVC's CODM has ultimate responsibility for enterprise decisions. QVC's CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, QVC-U.S. and QVC-International. The segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. QVC's CODM relies on internal management reporting that analyzes enterprise results and segment results to the Adjusted OIBDA level (see below).

QVC-U.S. and QVC-International are retailers of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised-shopping programs as well as via the Internet and mobile applications in certain markets.

The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as net revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped and revenue or sales per subscriber equivalent. The Company defines Adjusted OIBDA as revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation). The Company believes this measure is an important indicator of the operational strength and performance of its segments, including the ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking among the Company's businesses and identify strategies to improve performance. This measure of performance excludes depreciation, amortization and stock-based compensation, that are included in the measurement of operating income pursuant to U.S. GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.

Performance measures



	Three months ended September 30,					Nine months ended September 30,
	2017			2016		2017		2016
(in millions)	Net revenue		Adjusted OIBDA	Net revenue	Adjusted OIBDA	Net revenue	Adjusted OIBDA	Net revenue	Adjusted OIBDA
QVC-U.S.	$	1,374	313	1,338	308	4,111	1,010	4,173	997
QVC-International	636		99	610	85	1,843	304	1,851	274
Consolidated QVC	$	2,010	412	1,948	393	5,954	1,314	6,024	1,271

Net revenue amounts by product category are not available from our general purpose financial statements.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

~~Performance measures~~

Three months ended September 30, Nine months ended September 30,
2016 2015 2016 2015
(in millions) Net
revenue
Adjusted
OIBDA
Net
revenue
Adjusted
OIBDA
Net
revenue
Adjusted
OIBDA
Net
revenue
Adjusted
OIBDA
QVC-U.S. $ 1,338
308
1,420
333
4,173
997
4,168
988
QVC-International 610
85
587
97
1,851
274
1,775
298
Consolidated QVC $ 1,948
393
2,007
430
6,024
1,271
5,943
1,286

~~Net revenue amounts by product category are not available from our general purpose financial statements.~~

Other information


	Three months ended September 30,					Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
	2016			2015		2016		2015		2017			2016		2017		2016
(in millions)	Depreciation		Amortization	Depreciation	Amortization	Depreciation	Amortization	Depreciation	Amortization	Depreciation		Amortization	Depreciation	Amortization	Depreciation	Amortization	Depreciation	Amortization
QVC-U.S.	$	22	103	15	97	55	308	47	303	$	24	83	22	103	70	293	55	308
QVC-International	16		13	18	11	48	37	54	38	14		8	16	13	46	31	48	37
Consolidated QVC	$	38	116	33	108	103	345	101	341	$	38	91	38	116	116	324	103	345


	September 30, 2016			December 31, 2015		September 30, 2017			December 31, 2016
(in millions)	Total assets		Capital expenditures	Total assets	Capital expenditures	Total assets		Capital expenditures	Total assets	Capital expenditures
QVC-U.S.	$	9,391	120	9,913	169	$	9,107	63	9,595	152
QVC-International	2,147		20	2,145	46	2,156		20	1,950	27
Consolidated QVC	$	11,538	140	12,058	215	$	11,263	83	11,545	179

Long-lived assets, net of accumulated depreciation, by segment were as follows:


(in millions)	September 30, 2016		December 31, 2015	September 30, 2017		December 31, 2016
QVC-U.S.	$	597	501	$	552	594
QVC-International	490		501	446		437
Consolidated QVC	$	1,087	1,002	$	998	1,031

The following table provides a reconciliation of Adjusted OIBDA to income before income taxes:


	Three months ended September 30,					Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
(in millions)	2016			2015		2016		2015		2017			2016		2017		2016
Adjusted OIBDA	$	393		430		1,271		1,286		$	412		393		1,314		1,271
Stock-based compensation	(8		)	(9	)	(24	)	(24	)	(9		)	(8	)	(23	)	(24	)
Depreciation and amortization	(154		)	(141	)	(448	)	(442	)	(129		)	(154	)	(440	)	(448	)
Equity in losses of investee	(2		)	(3	)	(4	)	(7	)	—			(2	)	(3	)	(4	)
Interest expense, net	(52		)	(49	)	(159	)	(158	)	(54		)	(52	)	(165	)	(159	)
Foreign currency gain	5			12		27		11
Loss on extinguishment of debt	—			—		—		(21	)
Foreign currency gain (loss)										4			5		(6	)	27
Income before income taxes	$	182		240		663		645		$	224		182		677		663

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Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(12) Other Comprehensive ~~Loss~~(Loss) Income

The change in the component of accumulated other comprehensive loss, net of taxes ("AOCL"), is summarized as follows:


(in millions)	Foreign currency translation adjustments			AOCL		Foreign currency translation adjustments			AOCL
Balance at January 1, 2017						$	(224	)	(224	)
Other comprehensive income attributable to QVC, Inc. stockholder						106			106
Balance at September 30, 2017						(118		)	(118	)

Balance at January 1, 2016	$	(140	)	(140	)	$	(140	)	(140	)
Other comprehensive income attributable to QVC, Inc. stockholder	18			18		18			18
Balance at September 30, 2016	(122		)	(122	)	(122		)	(122	)

Balance at January 1, 2015	$	(39	)	(39	)
Other comprehensive loss attributable to QVC, Inc. stockholder	(77		)	(77	)
Balance at September 30, 2015	(116		)	(116	)

The component of other comprehensive income is reflected in QVC's condensed consolidated statements of comprehensive income, net of taxes. The following table summarizes the tax effects related to the component of other comprehensive income:


(in millions)	Before-tax amount			Tax benefit	Net-of-tax amount		Before-tax amount			Tax (expense) benefit		Net-of-tax amount
Three months ended September 30, 2016
Three months ended September 30, 2017
Foreign currency translation adjustments	$	(7	)	4	(3	)	$	33		(5	)	28
Other comprehensive income	(7		)	4	(3	)	33			(5	)	28

Three months ended September 30, 2015
Three months ended September 30, 2016
Foreign currency translation adjustments	$	(9	)	12	3		$	(7	)	4		(3	)
Other comprehensive loss	(9		)	12	3		(7		)	4		(3	)

Nine months ended September 30, 2017:
Foreign currency translation adjustments							$	135		(25	)	110
Other comprehensive income							135			(25	)	110

Nine months ended September 30, 2016:
Foreign currency translation adjustments	$	23		13	36		$	23		13		36
Other comprehensive loss	23			13	36

Nine months ended September 30, 2015:
Foreign currency translation adjustments	$	(89	)	12	(77	)
Other comprehensive loss	(89		)	12	(77	)
Other comprehensive income							23			13		36

(13) Subsequent Event

Subsequent to September 30, 2017, QVC declared and paid dividends to Liberty in the amount of $300 million.

As of November 9, 2017, zulily had $275 million outstanding on the shared tranche within the Third Amended and Restated Credit Agreement.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

~~(13) Subsequent Event~~

~~Subsequent to September 30, 2016, QVC declared and paid a dividend to Liberty in the amount of $160 million.~~

~~As of October 31, 2016, zulily had $285 million outstanding on the shared tranche within the Third Amended and Restated Credit Agreement.~~

(14) Guarantor/Non-guarantor Subsidiary Financial Information

The following information contains the condensed consolidating financial statements for the Company, the parent on a stand-alone basis (QVC, Inc.), the combined subsidiary guarantors (Affiliate Relations Holdings, Inc.; Affiliate Investment, Inc.; AMI 2, Inc.; ER Marks, Inc.; QVC Rocky Mount, Inc.; QVC San Antonio, LLC; QVC Global Holdings I, Inc.; and QVC Global Holdings II, Inc.) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.

In connection with the Third Amended and Restated Credit Agreement ~~(refer to note~~(see notes 1 and 6), QVC International Ltd is no longer a guarantor subsidiary, and is reflected with the combined non-guarantor subsidiaries.

These condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Company's condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, such as management fees, royalty revenue and expense, interest income and expense and gains on intercompany asset transfers. Goodwill and other intangible assets have been allocated to the subsidiaries based on management’s estimates. Certain costs have been partially allocated to all of the subsidiaries of the Company.

With One Q as mentioned in note 11, QVC began allocating certain additional corporate costs for management reporting purposes, which were historically included in its QVC-U.S. segment, to the QVC-International segment.

The subsidiary guarantors are 100% owned by the Company. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its U.S. subsidiaries, including the guarantors, by dividend or loan. The Company has not presented separate notes and other disclosures concerning the subsidiary guarantors as the Company has determined that such material information is available in the notes to the Company's condensed consolidated financial statements.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Balance Sheets


September 30, 2016
September 30, 2017										September 30, 2017
(in millions)	Parent issuer- QVC, Inc.		Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries	Parent issuer- QVC, Inc.		Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	2	99		218		—		319	$	3	50		290		—		343
Restricted cash	9		—		2		—		11	8		—		3		—		11
Accounts receivable, net	564		—		230		—		794	628		—		260		—		888
Inventories	845		—		278		—		1,123	868		—		296		—		1,164
Prepaid expenses and other current assets	25		—		25		—		50	26		1		28		—		55
Total current assets	1,445		99		753		—		2,297	1,533		51		877		—		2,461
Property and equipment, net	318		65		704		—		1,087	286		59		653		—		998
Cable and satellite television distribution rights, net	—		181		24		—		205
Television distribution rights, net										—		78		—		—		78
Goodwill	4,190		—		879		—		5,069	4,190		—		876		—		5,066
Other intangible assets, net	716		2,049		28		—		2,793	534		2,048		17		—		2,599
Other noncurrent assets	6		—		81		—		87	15		—		46		—		61
Investments in subsidiaries	3,492		1,064		—		(4,556	)	—	3,190		64		—		(3,254	)	—
Total assets	$	10,167	3,458		2,469		(4,556	)	11,538	$	9,748	2,300		2,469		(3,254	)	11,263
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	3	—		10		—		13	$	3	—		14		—		17
Accounts payable-trade	395		—		242		—		637	458		—		268		—		726
Accrued liabilities	8		183		435		—		626	70		157		403		—		630
Intercompany accounts payable (receivable)	479		(203	)	(276	)	—		—	270		(1,434	)	1,164		—		—
Total current liabilities	885		(20	)	411		—		1,276	801		(1,277	)	1,849		—		1,373
Long-term portion of debt and capital lease obligations	5,105		—		149		—		5,254	4,927		—		146		—		5,073
Deferred income taxes	90		716		(56	)	—		750	73		718		(61	)	—		730
Other long-term liabilities	107		—		46				153	102		—		25		—		127
Total liabilities	6,187		696		550		—		7,433	5,903		(559	)	1,959		—		7,303
Equity:
QVC, Inc. stockholder's equity	3,980		2,762		1,794		(4,556	)	3,980	3,845		2,859		395		(3,254	)	3,845
Noncontrolling interest	—		—		125		—		125	—		—		115		—		115
Total equity	3,980		2,762		1,919		(4,556	)	4,105	3,845		2,859		510		(3,254	)	3,960
Total liabilities and equity	$	10,167	3,458		2,469		(4,556	)	11,538	$	9,748	2,300		2,469		(3,254	)	11,263

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Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Balance Sheets


December 31, 2015
December 31, 2016									December 31, 2016
(in millions)	Parent issuer- QVC, Inc.		Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries	Parent issuer- QVC, Inc.		Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	—	112	215		—		327	$	2	97		185		—		284
Restricted cash	9		—	2		—		11	8		—		2		—		10
Accounts receivable, net	1,114		—	256		—		1,370	958		—		288		—		1,246
Inventories	714		—	215		—		929	726		—		224		—		950
Prepaid expenses and other current assets	18		—	24		—		42	22		—		24		—		46
Total current assets	1,855		112	712		—		2,679	1,716		97		723		—		2,536
Property and equipment, net	295		67	640		—		1,002	317		63		651		—		1,031
Cable and satellite television distribution rights, net	—		297	42		—		339
Television distribution rights, net									—		167		16		—		183
Goodwill	4,190		—	845		—		5,035	4,190		—		805		—		4,995
Other intangible assets, net	842		2,050	44		—		2,936	666		2,049		23		—		2,738
Other noncurrent assets	5		—	62		—		67	15		—		47		—		62
Investments in subsidiaries	3,569		2,687	—		(6,256	)	—	3,389		1,030		—		(4,419	)	—
Total assets	$	10,756	5,213	2,345		(6,256	)	12,058	$	10,293	3,406		2,265		(4,419	)	11,545
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	3	—	6		—		9	$	3	—		11		—		14
Accounts payable-trade	396		—	262		—		658	425		—		253		—		678
Accrued liabilities	229		207	436		—		872	74		234		461		—		769
Intercompany accounts payable (receivable)	562		1,271	(1,833	)	—		—	623		(246	)	(377	)	—		—
Total current liabilities	1,190		1,478	(1,129	)	—		1,539	1,125		(12	)	348		—		1,461
Long-term portion of debt and capital lease obligations	5,342		—	51		—		5,393	5,132		—		143		—		5,275
Deferred income taxes	94		744	(11	)	—		827	145		707		(74	)	—		778
Other long-term liabilities	112		—	69		—		181	96		—		40		—		136
Total liabilities	6,738		2,222	(1,020	)	—		7,940	6,498		695		457		—		7,650
Equity:
QVC, Inc. stockholder's equity	4,018		2,991	3,265		(6,256	)	4,018	3,795		2,711		1,708		(4,419	)	3,795
Noncontrolling interest	—		—	100		—		100	—		—		100		—		100
Total equity	4,018		2,991	3,365		(6,256	)	4,118	3,795		2,711		1,808		(4,419	)	3,895
Total liabilities and equity	$	10,756	5,213	2,345		(6,256	)	12,058	$	10,293	3,406		2,265		(4,419	)	11,545

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Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Three months ended September 30, 2016
Three months ended September 30, 2017												Three months ended September 30, 2017
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	1,369		224		662		(307	)	1,948		$	1,419		234		688		(331	)	2,010
Cost of goods sold	847			38		416		(50	)	1,251		864			37		422		(41	)	1,282
Gross profit	522			186		246		(257	)	697		555			197		266		(290	)	728
Operating expenses:
Operating	94			61		64		(79	)	140		106			64		70		(95	)	145
Selling, general and administrative, including stock-based compensation	246			—		104		(178	)	172		262			—		113		(195	)	180
Depreciation	16			1		21		—		38		17			2		19		—		38
Amortization	62			41		13		—		116		47			35		9		—		91
	418			103		202		(257	)	466		432			101		211		(290	)	454
Operating income	104			83		44		—		231		123			96		55		—		274
Other (expense) income:
Equity in losses of investee	—			—		(2	)	—		(2	)
Interest expense, net	(52		)	—		—		—		(52	)	(54		)	—		—		—		(54	)
Foreign currency gain	3			—		2		—		5
Foreign currency (loss) gain												(1		)	1		4		—		4
Intercompany interest (expense) income	—			—		—		—		—		(1		)	23		(22	)	—		—
	(49		)	—		—		—		(49	)	(56		)	24		(18	)	—		(50	)
Income before income taxes	55			83		44		—		182		67			120		37		—		224
Income tax expense	(13		)	(26	)	(27	)	—		(66	)	(13		)	(24	)	(21	)	—		(58	)
Equity in earnings of subsidiaries, net of tax	74			24		—		(98	)	—		112			19		—		(131	)	—
Net income	116			81		17		(98	)	116		166			115		16		(131	)	166
Less net income attributable to the noncontrolling interest	(9		)	—		(9	)	9		(9	)	(12		)	—		(12	)	12		(12	)
Net income attributable to QVC, Inc. stockholder	$	107		81		8		(89	)	107		$	154		115		4		(119	)	154

I-22

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Three months ended September 30, 2015
Three months ended September 30, 2016												Three months ended September 30, 2016
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	1,458		223		641		(315	)	2,007		$	1,369		224		662		(307	)	1,948
Cost of goods sold	905			27		385		(51	)	1,266		847			38		416		(50	)	1,251
Gross profit	553			196		256		(264	)	741		522			186		246		(257	)	697
Operating expenses:
Operating	81			63		72		(72	)	144		94			61		64		(79	)	140
Selling, general and administrative, including stock-based compensation	271			—		97		(192	)	176		246			—		104		(178	)	172
Depreciation	11			2		20		—		33		16			1		21		—		38
Amortization	56			40		12		—		108		62			41		13		—		116
	419			105		201		(264	)	461		418			103		202		(257	)	466
Operating income	134			91		55		—		280		104			83		44		—		231
Other (expense) income:
Equity in losses of investee	—			—		(3	)	—		(3	)	—			—		(2	)	—		(2	)
Interest expense, net	(50		)	—		1		—		(49	)	(52		)	—		—		—		(52	)
Foreign currency gain	4			7		1		—		12		3			—		2		—		5
Intercompany interest (expense) income	(1		)	(21	)	22		—		—
	(47		)	(14	)	21		—		(40	)	(49		)	—		—		—		(49	)
Income before income taxes	87			77		76		—		240		55			83		44		—		182
Income tax expense	(23		)	(25	)	(38	)	—		(86	)	(13		)	(26	)	(27	)	—		(66	)
Equity in earnings of subsidiaries, net of tax	90			37		—		(127	)	—		74			24		—		(98	)	—
Net income	154			89		38		(127	)	154		116			81		17		(98	)	116
Less net income attributable to the noncontrolling interest	(8		)	—		(8	)	8		(8	)	(9		)	—		(9	)	9		(9	)
Net income attributable to QVC, Inc. stockholder	$	146		89		30		(119	)	146		$	107		81		8		(89	)	107

I-23

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Nine months ended September 30, 2016
Nine months ended September 30, 2017												Nine months ended September 30, 2017
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	4,272		688		2,009		(945	)	6,024		$	4,225		679		1,992		(942	)	5,954
Cost of goods sold	2,594			116		1,245		(139	)	3,816		2,557			106		1,210		(118	)	3,755
Gross profit	1,678			572		764		(806	)	2,208		1,668			573		782		(824	)	2,199
Operating expenses:
Operating	296			180		204		(252	)	428		301			182		204		(268	)	419
Selling, general and administrative, including stock-based compensation	773			—		314		(554	)	533		743			—		302		(556	)	489
Depreciation	41			5		57		—		103		50			6		60		—		116
Amortization	182			125		38		—		345		167			125		32		—		324
	1,292			310		613		(806	)	1,409		1,261			313		598		(824	)	1,348
Operating income	386			262		151		—		799		407			260		184		—		851
Other (expense) income:
Equity in losses of investee	—			—		(4	)	—		(4	)	—			—		(3	)	—		(3	)
Interest expense, net	(159		)	—		—		—		(159	)	(163		)	—		(2	)	—		(165	)
Foreign currency gain	12			—		15		—		27
Foreign currency (loss) gain												(4		)	1		(3	)	—		(6	)
Intercompany interest (expense) income	(1		)	1		—		—		—		(3		)	68		(65	)	—		—
	(148		)	1		11		—		(136	)	(170		)	69		(73	)	—		(174	)
Income before income taxes	238			263		162		—		663		237			329		111		—		677
Income tax expense	(75		)	(85	)	(84	)	—		(244	)	(84		)	(86	)	(55	)	—		(225	)
Equity in earnings of subsidiaries, net of tax	256			106		—		(362	)	—		299			34		—		(333	)	—
Net income	419			284		78		(362	)	419		452			277		56		(333	)	452
Less net income attributable to the noncontrolling interest	(28		)	—		(28	)	28		(28	)	(33		)	—		(33	)	33		(33	)
Net income attributable to QVC, Inc. stockholder	$	391		284		50		(334	)	391		$	419		277		23		(300	)	419

I-24

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Nine months ended September 30, 2015
Nine months ended September 30, 2016												Nine months ended September 30, 2016
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	4,282		645		1,938		(922	)	5,943		$	4,272		688		2,009		(945	)	6,024
Cost of goods sold	2,632			75		1,153		(139	)	3,721		2,594			116		1,245		(139	)	3,816
Gross profit	1,650			570		785		(783	)	2,222		1,678			572		764		(806	)	2,208
Operating expenses:
Operating	253			181		214		(224	)	424		296			180		204		(252	)	428
Selling, general and administrative, including stock-based compensation	803			—		292		(559	)	536		773			—		314		(554	)	533
Depreciation	32			6		63		—		101		41			5		57		—		103
Amortization	175			121		45		—		341		182			125		38		—		345
	1,263			308		614		(783	)	1,402		1,292			310		613		(806	)	1,409
Operating income	387			262		171		—		820		386			262		151		—		799
Other (expense) income:
Equity in losses of investee	—			—		(7	)	—		(7	)	—			—		(4	)	—		(4	)
Interest expense, net	(157		)	—		(1	)	—		(158	)	(159		)	—		—		—		(159	)
Foreign currency gain (loss)	12			(6	)	5		—		11
Loss on extinguishment of debt	(21		)	—		—		—		(21	)
Foreign currency gain												12			—		15		—		27
Intercompany interest (expense) income	(7		)	(30	)	37		—		—		(1		)	1		—		—		—
	(173		)	(36	)	34		—		(175	)	(148		)	1		11		—		(136	)
Income before income taxes	214			226		205		—		645		238			263		162		—		663
Income tax expense	(63		)	(101	)	(79	)	—		(243	)	(75		)	(85	)	(84	)	—		(244	)
Equity in earnings of subsidiaries, net of tax	251			145		—		(396	)	—		256			106		—		(362	)	—
Net income	402			270		126		(396	)	402		419			284		78		(362	)	419
Less net income attributable to the noncontrolling interest	(25		)	—		(25	)	25		(25	)	(28		)	—		(28	)	28		(28	)
Net income attributable to QVC, Inc. stockholder	$	377		270		101		(371	)	377		$	391		284		50		(334	)	391

I-25

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Comprehensive Income


Three months ended September 30, 2016
Three months ended September 30, 2017											Three months ended September 30, 2017
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	116		81	17		(98	)	116		$	166		115	16		(131	)	166
Foreign currency translation adjustments	(3		)	—	(3	)	3		(3	)
Foreign currency translation adjustments, net of tax											28			—	28		(28	)	28
Total comprehensive income	113			81	14		(95	)	113		194			115	44		(159	)	194
Comprehensive income attributable to noncontrolling interest	(11		)	—	(11	)	11		(11	)	(12		)	—	(12	)	12		(12	)
Comprehensive income attributable to QVC, Inc. stockholder	$	102		81	3		(84	)	102		$	182		115	32		(147	)	182

Condensed Consolidating Statements of Comprehensive Income

Three months ended September 30, 2015
(in millions) Parent
issuer-
QVC, Inc.
Combined
subsidiary
guarantors
Combined
non-guarantor
subsidiaries
Eliminations
Consolidated-
QVC, Inc. and
subsidiaries
Net income $ 154
89
38
(127 ) 154
Foreign currency translation adjustments 3
—
3
(3 ) 3
Total comprehensive income 157
89
41
(130 ) 157
Comprehensive income attributable to noncontrolling interest (11 ) —
(11 ) 11
(11 )
Comprehensive income attributable to QVC, Inc. stockholder $ 146
89
30
(119 ) 146

~~Condensed Consolidating Statements of Comprehensive Income~~


Nine months ended September 30, 2016
Three months ended September 30, 2016											Three months ended September 30, 2016
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	419		284	78		(362	)	419		$	116		81	17		(98	)	116
Foreign currency translation adjustments	36			—	36		(36	)	36
Foreign currency translation adjustments, net of tax											(3		)	—	(3	)	3		(3	)
Total comprehensive income	455			284	114		(398	)	455		113			81	14		(95	)	113
Comprehensive income attributable to noncontrolling interest	(46		)	—	(46	)	46		(46	)	(11		)	—	(11	)	11		(11	)
Comprehensive income attributable to QVC, Inc. stockholder	$	409		284	68		(352	)	409		$	102		81	3		(84	)	102

I-26

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Comprehensive Income


Nine months ended September 30, 2015
Nine months ended September 30, 2017											Nine months ended September 30, 2017
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	402		270	126		(396	)	402		$	452		277	56		(333	)	452
Foreign currency translation adjustments	(77		)	—	(77	)	77		(77	)
Foreign currency translation adjustments, net of tax											110			—	110		(110	)	110
Total comprehensive income	325			270	49		(319	)	325		562			277	166		(443	)	562
Comprehensive income attributable to noncontrolling interest	(25		)	—	(25	)	25		(25	)	(37		)	—	(37	)	37		(37	)
Comprehensive income attributable to QVC, Inc. stockholder	$	300		270	24		(294	)	300		$	525		277	129		(406	)	525

Condensed Consolidating Statements of Comprehensive Income



Nine months ended September 30, 2016
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	419		284	78		(362	)	419
Foreign currency translation adjustments, net of tax	36			—	36		(36	)	36
Total comprehensive income	455			284	114		(398	)	455
Comprehensive income attributable to noncontrolling interest	(46		)	—	(46	)	46		(46	)
Comprehensive income attributable to QVC, Inc. stockholder	$	409		284	68		(352	)	409

I-27

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Cash Flows


Nine months ended September 30, 2016
Nine months ended September 30, 2017												Nine months ended September 30, 2017
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Operating activities:
Net cash provided by operating activities	$	586		256		7		—		849		$	550		306		51		—		907
Investing activities:
Capital expenditures	(113		)	(3	)	(24	)	—		(140	)	(54		)	(2	)	(27	)	—		(83	)
Expenditures for cable and satellite television distribution rights, net	—			(8	)	—		—		(8	)
Expenditures for television distribution rights												—			(35	)	—		—		(35	)
Changes in other noncurrent assets	6			—		(8	)	—		(2	)	(1		)	—		(1	)	—		(2	)
Other investing activities	(12		)	—		9		—		(3	)
Intercompany investing activities	432			137		—		(569	)	—		385			(1,087	)	—		702		—
Net cash provided by (used in) investing activities	313			126		(23	)	(569	)	(153	)	330			(1,124	)	(28	)	702		(120	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,295		)	—		(5	)	—		(1,300	)	(1,785		)	—		(6	)	—		(1,791	)
Principal borrowings of debt from senior secured credit facility	1,048			—		—		—		1,048		1,574			—		—		—		1,574
Payment of debt origination fees	(2		)	—		—		—		(2	)
Dividends paid to Liberty	(427		)	—		—		—		(427	)
Dividends paid to Liberty Interactive Corporation												(491		)	—		—		—		(491	)
Dividends paid to noncontrolling interest	—			—		(21	)	—		(21	)	—			—		(22	)	—		(22	)
Other financing activities	(9		)	—		—		—		(9	)	(10		)	—		—		—		(10	)
Net short-term intercompany debt (repayments) borrowings	(83		)	(1,474	)	1,557		—		—		(353		)	(1,188	)	1,541		—		—
Other intercompany financing activities	(129		)	1,079		(1,519	)	569		—		186			1,959		(1,443	)	(702	)	—
Net cash (used in) provided by financing activities	(897		)	(395	)	12		569		(711	)	(879		)	771		70		(702	)	(740	)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—		7		—		7		—			—		12		—		12
Net increase (decrease) in cash and cash equivalents	2			(13	)	3		—		(8	)	1			(47	)	105		—		59
Cash and cash equivalents, beginning of period	—			112		215		—		327		2			97		185		—		284
Cash and cash equivalents, end of period	$	2		99		218		—		319		$	3		50		290		—		343

I-28

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Cash Flows


Nine months ended September 30, 2015
Nine months ended September 30, 2016												Nine months ended September 30, 2016
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Operating activities:
Net cash provided by operating activities	$	359		152		282		—		793		$	586		256		7		—		849
Investing activities:
Capital expenditures	(90		)	(6	)	(36	)	—		(132	)	(113		)	(3	)	(24	)	—		(140	)
Expenditures for cable and satellite television distribution rights, net	—			(45	)	(3	)	—		(48	)
Decrease (increase) in restricted cash	1			—		(1	)	—		—
Expenditures for television distribution rights												—			(8	)	—		—		(8	)
Changes in other noncurrent assets												6			—		(8	)	—		(2	)
Other investing activities	2			—		—		—		2		(12		)	—		9		—		(3	)
Changes in other noncurrent assets	—			—		(1	)	—		(1	)
Intercompany investing activities	339			382		—		(721	)	—		432			137		—		(569	)	—
Net cash provided by (used in) investing activities	252			331		(41	)	(721	)	(179	)	313			126		(23	)	(569	)	(153	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,560		)	—		(5	)	—		(1,565	)	(1,295		)	—		(5	)	—		(1,300	)
Principal borrowings of debt from senior secured credit facility	1,470			—		—		—		1,470		1,048			—		—		—		1,048
Payment of debt origination fees	(3		)	—		—		—		(3	)	(2		)	—		—		—		(2	)
Payment of bond premium fees	(18		)	—		—		—		(18	)
Dividends paid to Liberty	(444		)	—		—		—		(444	)
Dividends paid to Liberty Interactive Corporation												(427		)	—		—		—		(427	)
Dividends paid to noncontrolling interest	—			—		(20	)	—		(20	)	—			—		(21	)	—		(21	)
Other financing activities	(14		)	—		—		—		(14	)	(9		)	—		—		—		(9	)
Net short-term intercompany debt (repayments) borrowings	(884		)	2,224		(1,340	)	—		—		(83		)	(1,474	)	1,557		—		—
Other intercompany financing activities	837			(2,695	)	1,137		721		—		(129		)	1,079		(1,519	)	569		—
Net cash used in financing activities	(616		)	(471	)	(228	)	721		(594	)
Net cash (used in) provided by financing activities												(897		)	(395	)	12		569		(711	)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—		(4	)	—		(4	)	—			—		7		—		7
Net (decrease) increase in cash and cash equivalents	(5		)	12		9		—		16
Net increase (decrease) in cash and cash equivalents												2			(13	)	3		—		(8	)
Cash and cash equivalents, beginning of period	2			123		222		—		347		—			112		215		—		327
Cash and cash equivalents, end of period	$	(3	)	135		231		—		363		$	2		99		218		—		319

I-29

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; ~~international expansion;~~ new service offerings; revenue growth and subscriber trends; the recoverability of our goodwill and other long-lived assets; our projected sources and uses of cash and the anticipated impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

customer demand for our products and services and our ability to adapt to changes in demand;

competitor responses to our products and services;

increased digital TV penetration and the impact on channel positioning of our programs;

the levels of online traffic on our websites and our ability to convert visitors into consumers or contributors;

uncertainties inherent in the development and integration of new business lines and business strategies;

our future financial performance, including availability, terms and deployment of capital;

our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire;

the ability of suppliers and vendors to deliver products, equipment, software and services;

the outcome of any pending or threatened litigation;

availability of qualified personnel;

changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings;

changes in the nature of key strategic relationships with partners, distributors, suppliers and vendors;

domestic and international economic and business conditions and industry ~~trends, including~~trends;

changes in tariffs, trade policy and trade relations following the ~~impact of Brexit (as defined below)~~2016 U.S. presidential election and the vote by the U.K. to exit from the European Union (“Brexit”);

consumer spending levels, including the availability and amount of individual consumer debt;

advertising spending levels;

changes in distribution and viewing of television programming, including the expanded deployment of personal video recorders, video on demand and IPInternet Protocol television and their impact on home shopping programming;

rapid technological changes;

failure to protect the security of personal information, subjecting us to potentially costly government enforcement actions and/or private litigation and reputational damage;

the regulatory and competitive environment of the industries in which we operate;

threatened terrorist attacks, political unrest in international markets and ongoing military action around the world;

fluctuations in foreign currency exchange rates; and

Liberty Interactive ~~Corporation's~~Corporation’s ("Liberty") dependence on our cash flow for servicing its debt and for other purposes.

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For additional risk factors, please see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2016 as well as Part II, Item 1A1A. Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2016.~~2017. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Overview

QVC, Inc. (unless otherwise indicated or required by the context, the terms "we," "our," "us," the "Company" and "QVC" refer to QVC, Inc. and its consolidated subsidiaries) is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.

In the United States ~~QVC's~~("U.S."), our televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC2 (f/k/a QVC Plus) and Beauty iQ. Our U.S. programming is ~~distributed~~also available on QVC.com, our U.S. website; mobile applications via ~~its nationally~~streaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, etc.).

We believe that our digital platforms complement our televised shopping ~~program 24 hours per day, 364 days per year. Internationally, QVC's program services~~programs by allowing consumers to purchase a wide assortment of goods offered on our televised programs, as well as other products that are ~~based~~available only on our digital platforms. We view e-commerce as a natural extension of our business, allowing us to stream live video and offer on-demand video segments of items recently presented live on our televised programs. Our digital platforms allow shoppers to browse, research, compare and perform targeted searches for products, control the order-entry process and conveniently access their QVC account.

Our international televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), the Republic of Ireland, Italy ~~Japan,~~ and France.

In some of the countries where we operate, our televised shopping programs are broadcast across multiple QVC channels: QVC Beauty & Style and QVC Plus in Germany and QVC ~~distributes its program 24 hours per day with 17 hours of live programming. In Japan,~~Beauty, QVC ~~distributes live programming 24 hours per day. In~~Extra, QVC Style and QVC +1 in the U.K.~~, QVC distributes its program 24 hours per day with 16 hours~~ The programming created for most of ~~live programming. In Italy, QVC distributes programming live for 17 hours per day~~these markets is also available via streaming video on ~~satellite and~~our digital terrestrial television and an additional seven hours per day of recorded programming on satellite and seven hours per day of general interest programming on digital terrestrial television. On weekdays, QVC distributes shopping programming in France live for eight hours per day, and distributes an additional 14 hours per day of recorded programming and two hours per day of general interest programming. On weekends, QVC distributes shopping programming in France live for 12 hours per day, and distributes an additional 10 hours per day of recorded programming and two hours per day of general interest programming.

During the year ended December 31, 2015, QVC began reporting its results based on two operating segments: QVC-U.S. and QVC-International, as a result of the One Q Reorganization Plan ("One Q"). The One Q organizational structure is intended to allow the Company to better leverage its global scale and capabilities, to enhance its competitive position and to create operational efficiencies. Beginning in the first quarter of 2016, QVC began allocating certain additional corporate costs for management reporting purposes, which were historically included in its QVC-U.S. segment,platforms. Our international business employs product sourcing teams who select products tailored to the QVC-International segment. These management cost allocations are related to certain functions such as merchandising, commerce platforms, information technology, human resources, legal, finance, brand and communications, corporate development and administration that support allinterests of ~~QVC’s operations. For the three and nine months ended September 30, 2016, these costs totaled approximately $8 million and $24 million, respectively.~~each local market.

The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. ~~Live programming is distributed 15 hours per day and recorded programming is distributed nine hours per day.~~ This joint venture is accounted for as an equity method investment recorded as equity in losses of investee in the condensed consolidated statements of operations.

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The Company is an indirect ~~wholly owned~~wholly-owned subsidiary of Liberty, ~~Interactive Corporation ("Liberty"),~~ which owns interests in a broad range of digital commerce ~~businesses.~~businesses, and is attributed to Liberty's QVC Group. The QVC Group common stock (Nasdaq: QVCA and QVCB), tracks the ~~economic performance,~~ assets and liabilities of the QVC Group. The QVC Group tracks the Company, zulily, llc ~~(as of October 1, 2015)~~("zulily") and Liberty's 38% equity interest in HSN, Inc. ("HSN"), one of the Company's two closest televised shopping competitors, ~~along with~~ cash and certain liabilities. On July 6, 2017, Liberty announced plans to acquire the remaining interest in HSN, which would make it a wholly-owned subsidiary of Liberty following the closing. On April 4, 2017, Liberty entered into an agreement with General Communication, Inc. ("GCI"), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty, whereby Liberty will acquire GCI through a reorganization in which certain assets and liabilities attributed to Liberty’s Ventures Group will be contributed to GCI in exchange for a controlling interest in GCI. Liberty will then effect a tax-free separation of its controlling interest in the combined company, leaving QVC Group common stock as the only outstanding common stock of Liberty. Neither the proposed transactions involving GCI nor the acquisition of HSN is conditioned on the completion of the other, and no assurance can be given as to which of these transactions will be completed first. The QVC Group does not represent a separate legal entity; rather, it represents those businesses, assets and liabilities that are attributed to that group.

On October 1, 2015, Liberty acquired all of the outstanding shares of zulily, inc. ~~("zulily")~~ (now known as zulily, llc) ~~and QVC declared and paid a dividend to Liberty in the amount of $910 million with funds drawn from the Company’s credit facility to support Liberty’s purchase.~~. zulily is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched each day for a limited time period. zulily is attributed to the QVC Group and the Company believes that its business is complementary to the Company. zulily is not part of the results of operations or financial position of QVC presented in the accompanying condensed consolidated financial statements. During each of the nine months ended September 30, 2017 and 2016, QVC and zulily engaged in multiple transactions relating to sales, sourcing of merchandise, marketing initiatives, ~~and~~ business advisory ~~services.~~services and software development. The gross value of these transactions totaled ~~less than~~approximately $7 million and $11 million, respectively, which did not have a material impact on QVC's financial position, results of operations, or liquidity.

On June 23, 2016, QVC ~~engages with CommerceHub, Inc. ("CommerceHub"~~amended and restated its senior secured credit facility (the "Third Amended and Restated Credit Agreement")~~, which was an approximately 99% owned subsidiary of Liberty prior~~ increasing the revolving credit facility from $2.25 billion to $2.65 billion as explained further in note 6 to the completion of its spinoff from Liberty in July 2016, to handle communications between QVC and certain of its vendors for drop ship sales and returns. CommerceHub is not part of the results of operations or financial position of QVC presented in theseCompany's condensed consolidated financial statements. ~~During each~~The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or zulily. Under the terms of the ~~nine months ended~~Third Amended and Restated Credit Agreement, QVC and zulily are jointly and severally liable for all amounts borrowed on the $400 million tranche. In accordance with the accounting guidance for obligations resulting from joint and several liability arrangements, QVC will record a liability for amounts it has borrowed under the credit facility plus any additional amount it expects to repay on behalf of zulily. As of September 30, ~~2016,~~2017, there was $300 million borrowed by zulily on the $400 million tranche of the Third Amended and ~~2015, QVC paid CommerceHub for~~Restated Credit Agreement, none of which the ~~related services totaling less than $2 million, which did not have a material impact~~Company expects to repay on ~~QVC's financial position, results~~behalf of ~~operations, or liquidity. As of July 22, 2016, Liberty completed the spin-off of CommerceHub. As a result, Liberty and CommerceHub are now separate publicly traded companies.~~zulily.

Strategies and challenges of business units

QVC's goal is to become the preeminent global multimedia shopping community for people who love to shop, and to offer a shopping experience that is as much about entertainment and enrichment as it is about buying. QVC's objective is to provide an integrated shopping experience that utilizes all forms of media including television, the Internet and mobile devices. QVC intends to employ several strategies to achieve these goals and objectives. Among these strategies are to (i) extend the breadth, relevance and exposure of the QVC brand; (ii) source products that represent unique quality and value; (iii) create engaging presentation content in televised programming, mobile and online; (iv) leverage customer loyalty and continue multi-platform expansion; and (v) create a compelling and differentiated customer experience. ~~In addition, QVC expects to expand globally by leveraging its existing systems, infrastructure and skills in other countries around the world.~~

QVC's future net revenue growth will primarily depend on ~~international expansion,~~ sales growth from e-commerce and mobile platforms, additions of new customers from households already receiving QVC's television programming and increased spending from existing customers. QVC's future net revenue may also be affected by (i) the willingness of cable television and direct-to-home satellite system operators to continue carrying QVC's programming service; (ii) QVC's ability to maintain favorable channel positioning, which may become more difficult due to governmental action or from distributors converting analog customers to digital; (iii) changes in television viewing habits because of personal video recorders, video-on-demand and Internet video services; and (iv) general economic conditions.

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The prolonged economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could adversely affect demand for our products and services since a substantial portion of our revenue is derived from discretionary spending by individuals, which typically falls during times of economic instability. Global financial markets continue to experience disruptions, including increased volatility and diminished liquidity and credit availability. If economic and financial market conditions in the U.S. or other key markets, including Japan and Europe, remain uncertain, persist, or deteriorate further, our customers may respond by suspending, delaying, or reducing their discretionary spending. A suspension, delay or reduction in discretionary spending could adversely affect revenue. Accordingly, our ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline. ~~Such weak economic conditions may also inhibit our expansion into new European and other markets.~~ We currently are unable to predict the extent of any of these potential adverse effects.

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On June 23, 2016, the U.K. held a referendum in which British citizens approved an exit from the European Union (the "E.U."), commonly referred to as “Brexit.” As a result of the referendum, the global markets and currencies have been adversely impacted, including a sharp decline in the value of the U.K. Pound Sterling as compared to the U.S. ~~dollar.~~Dollar. Volatility in exchange rates is expected to continue in the short term as the U.K. negotiates its exit from the E.U. In the longer term, any impact from Brexit on us will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect our operations and financial results. On March 29, 2017, the U.K. invoked Article 50 of the Treaty of Lisbon, which is the first step of the U.K.’s formal exit from the EU. This started the two-year window in which the U.K. and the European Commission can negotiate future terms for imports, exports, taxes, employment, immigration and other areas, ending in the exit of the U.K. from the E.U.

The current President of the U.S. has expressed apprehension towards existing trade agreements, such as the North American Free Trade Agreement and the Trans-Pacific Partnership, and suggested that the U.S. would renegotiate or withdraw from these agreements. He also raised the possibility of significantly increasing tariffs on goods imported into the United States, particularly from China and Mexico. On January 23, 2017, the President of the U.S. signed a presidential memorandum to withdraw the U.S. from the Trans-Pacific Partnership. This and the other proposed actions, if implemented, could adversely affect our business because we sell imported products.

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Results of Operations

QVC's operating results were as follows:


	Three months ended September 30,					Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
(in millions)	2016			2015		2016		2015		2017			2016		2017		2016
Net revenue	$	1,948		2,007		6,024		5,943		$	2,010		1,948		5,954		6,024
Costs of goods sold	1,251			1,266		3,816		3,721		1,282			1,251		3,755		3,816
Gross profit	697			741		2,208		2,222		728			697		2,199		2,208
Operating expenses:
Operating	140			144		428		424		145			140		419		428
Selling, general and administrative, excluding stock-based compensation	164			167		509		512		171			164		466		509
Adjusted OIBDA	393			430		1,271		1,286		412			393		1,314		1,271
Stock-based compensation	8			9		24		24		9			8		23		24
Depreciation	38			33		103		101		38			38		116		103
Amortization	116			108		345		341		91			116		324		345
Operating income	231			280		799		820		274			231		851		799
Other (expense) income:
Equity in losses of investee	(2		)	(3	)	(4	)	(7	)	—			(2	)	(3	)	(4	)
Interest expense, net	(52		)	(49	)	(159	)	(158	)	(54		)	(52	)	(165	)	(159	)
Foreign currency gain	5			12		27		11
Loss on extinguishment of debt	—			—		—		(21	)
Foreign currency gain (loss)										4			5		(6	)	27
	(49		)	(40	)	(136	)	(175	)	(50		)	(49	)	(174	)	(136	)
Income before income taxes	182			240		663		645		224			182		677		663
Income tax expense	(66		)	(86	)	(244	)	(243	)	(58		)	(66	)	(225	)	(244	)
Net income	116			154		419		402		166			116		452		419
Less net income attributable to the noncontrolling interest	(9		)	(8	)	(28	)	(25	)	(12		)	(9	)	(33	)	(28	)
Net income attributable to QVC, Inc. stockholder	$	107		146		391		377		$	154		107		419		391

Net revenue

Net revenue by segment was as follows:

Three months ended September 30, Nine months ended September 30,
(in millions) 2016
2015
2016
2015
QVC-U.S. $ 1,338
1,420
4,173
4,168
QVC-International 610
587
1,851
1,775
Consolidated QVC $ 1,948
2,007
6,024
5,943

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	Three months ended September 30,			Nine months ended September 30,
(in millions)	2017		2016	2017	2016
QVC-U.S.	$	1,374	1,338	4,111	4,173
QVC-International	636		610	1,843	1,851
Consolidated QVC	$	2,010	1,948	5,954	6,024

QVC's consolidated net revenue increased 3.2% and decreased ~~2.9% and increased 1.4%~~1.2% for the three and nine months ended September 30, ~~2016~~2017, respectively, as compared to the corresponding periods in the prior year. The three month ~~decrease~~increase in net revenue of ~~$59~~$62 million was primarily comprised of an increase of $199 million due to a ~~4.9%~~9.2% increase in units sold. This was offset by a decrease of $92 million due to a 3.9% decrease in average selling price per unit ("ASP") ~~attributing $111~~, an increase in estimated product returns of $26 million, a $8 million due to a decrease in shipping and handling revenue, ~~and a $3~~$7 million ~~decrease~~ due to a decrease in units sold. The decrease was partially offset by a decrease of $50 million in estimated product returns and $13 million in favorable foreign currency rates primarily in Japan which was slightly offset by unfavorable foreign currency rates, and a $4 million decrease in ~~the U.K.~~miscellaneous income. The nine month ~~increase~~decrease in net revenue of ~~$81~~$70 million was primarily comprised of ~~$203~~$206 million due to a ~~3.0%~~2.9% decrease in ASP, $65 million due to unfavorable foreign currency rates, a decrease in shipping and handling revenue of $20 million, and a $12 million decrease in miscellaneous income. The decrease was offset by a $212 million increase in units sold and a ~~$68~~$21 million decrease in estimated product returns, $23 million in favorable foreign currency rates in Japan which was slightly offset by unfavorable foreign currency rates in the U.K and a $5 million increase related to product sales with zulily. The increase was partially offset by $207 million due to a 3.0% decrease in ASP and a $14 million decrease in shipping and handling revenue.returns.

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During the three and nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, the changes in revenue and expenses were affected by changes in the exchange rates for the Japanese Yen, the Euro and the U.K. Pound Sterling. In the event the U.S. Dollar strengthens against these foreign currencies in the future, QVC's revenue and operating cash flow will be negatively affected. Our product margins ~~in the U.K. are~~may continue to be under pressure due to the ~~rapid~~ devaluation of the U.K. Pound Sterling, ~~which~~ we will ~~try~~attempt to ~~offset this as much as possible~~reduce our exposure through pricing and vendor ~~negotiations.~~negotiations, as Brexit negotiations progress.

In discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for all countries where the functional currency is not the U.S. ~~dollar.~~Dollar. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the prior period's currency exchange rates. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. When we refer to constant currency operating results, this means operating results without the impact of the currency exchange rate fluctuations. The disclosure of constant currency amounts or results permits investors to understand better QVC’s underlying performance without the effects of currency exchange rate fluctuations.

The percentage ~~change~~increase (decrease) in net revenue for each of QVC's segments in U.S. Dollars and in constant currency was as follows:


	Three months ended September 30, 2016						Nine months ended September 30, 2016						Three months ended September 30, 2017						Nine months ended September 30, 2017
	U.S. Dollars		Foreign Currency Exchange Impact		Constant currency		U.S. Dollars		Foreign Currency Exchange Impact		Constant currency		U.S. Dollars		Foreign Currency Exchange Impact		Constant currency		U.S. Dollars		Foreign Currency Exchange Impact		Constant currency
QVC-U.S.	(5.8	)%	—	%	(5.8	)%	0.1	%	—	%	0.1	%	2.7	%	—	%	2.7	%	(1.5	)%	—	%	(1.5	)%
QVC-International	3.9	%	2.1	%	1.8	%	4.3	%	1.3	%	3.0	%	4.3	%	(1.0	)%	5.3	%	(0.4	)%	(3.4	)%	3.0	%

QVC-U.S. net revenue ~~decline~~increase for the three months ended September 30, ~~2016~~2017 was primarily due to a ~~6.7%~~8.7% increase in units shipped. The increase was offset by a decrease of 3.5% in ASP, a ~~1.4%~~$19 million increase in estimated product returns, a $11 million decrease in shipping and handling revenue, and a $5 million decrease in miscellaneous income. QVC-U.S. experienced a system outage during the second quarter of 2017 which resulted in an estimated 1% shift in net revenue to the third quarter. The increase in returns is driven by an increase in sales during the third quarter. Additionally, the Company experienced a decrease in shipping and handling revenue per unit due to promotional offers. For the three months ended September 30, 2017, QVC-U.S. experienced shipped sales increases in apparel, electronics, beauty and accessories offset by decreases in jewelry and home. For the nine months ended September 30, 2017, QVC U.S. net revenue decline was due to a decrease of 3.2% in ASP, a $24 million decrease in shipping and handling revenue, and an $11 million decrease in miscellaneous income. The decrease was offset by a 2.1% increase in units shipped, and a ~~6.6%~~$30 million decrease in estimated product returns. The decrease in net shipping and handling ~~revenue. The decline~~revenue was ~~offset by favorable impact~~a result of a decrease in ~~estimated product returns of $50 million~~shipping and ~~$3 million of product sales with zulily. QVC-US experienced shipped sales decline in electronics, beauty, jewelry and accessories offset by increases in home and apparel.~~handling revenue per unit from promotional offers. The decrease in estimated product returns was primarily due to ~~a decrease in sales and~~ an overall lower return rate ~~primarily in accessories, apparel~~ and ~~jewelry.~~reduced sales. For the nine months ended September 30, ~~2016,~~2017, QVC-U.S. net revenue growth was primarily due to a 3.0% increase in units shipped and a favorable impact in estimated product returns. The increases were partially offset by a 4.2% decrease in ASP and a 4.5% decrease in net shipping and handling revenue. QVC-US experienced shipped sales ~~growth~~increases in apparel, ~~home~~beauty and ~~accessories~~electronics offset by decreases in jewelry, ~~electronics~~home and beauty. The decrease in estimated product returns was primarily due to a decrease in the return rate and net adjustments to prior period estimates based on lower actual experience. For the three and nine months ended September 30, 2016, net shipping and handling revenue decreased in the U.S. primarily due to the decrease in shipping and handling rates per unit from promotional offers.

Beginning in early June, QVC-U.S. sales began to experience significant headwinds, which have continued. Since early October, sales declines have moderated into the low to mid single digits, as compared to the corresponding prior year period. We have developed and are implementing a number of strategies and initiatives intended to reverse the negative trends and we are optimistic, although there is no guarantee, that these actions will have a positive effect.

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accessories.

QVC-International net revenue growth in constant currency for the three ~~and nine~~ months ended September 30, ~~2016~~2017 was primarily due to a ~~2.1% and 3.0%~~9.9% increase ~~respectively,~~ in units shipped, ~~mainly~~driven by increases in Japan, Germany, the U.K., and France, offset by a decrease in Italy. There was a $3 million increase in shipping and handling revenue, primarily driven by Japan and Germany. This was offset by a 4.5% decrease in ASP, primarily driven by Japan and Germany, and ~~Italy, and specifically~~a $7 million increase in estimated product returns driven by all markets except for ~~the nine months ended September 30, 2016, the increase was slightly offset by~~ Japan. For the three months ended September 30, ~~2016,~~2017, QVC-International experienced shipped sales growth in ~~beauty, accessories and electronics offset by decreases~~constant currency in apparel, accessories, home and ~~jewelry,~~beauty with declines in electronics and jewelry. Net revenue growth in constant currency for the nine months ended September 30, ~~2016, QVC-International experienced~~2017 was primarily due to a 4.9% increase in units shipped, ~~sales growth~~driven by increases in Japan, Germany, and France, offset by decreases in units shipped in the U.K. and Italy. There was a $4 million increase in shipping and handling revenue, primarily driven by Japan. This was offset by a 2% decrease in ASP, primarily driven in Japan and Germany offset by increases in the U.K. and Italy and France, and a $9 million increase in estimated product returns, driven by all ~~categories~~markets except ~~jewelry and apparel.~~for Japan. For the nine months ended September 30, ~~2016, the net revenue increase was partially offset by an increase~~2017, QVC-International experienced shipped sales growth in ~~estimated product returns primarily~~constant currency in ~~Germany~~apparel, beauty and ~~the U.K. mainly due to an increase~~accessories with declines in ~~units shipped.~~electronics, jewelry and home.

Gross profit

QVC's gross profit percentage was 36.2% and 36.9% for the three and nine months ended September 30, 2017, respectively, compared to 35.8% and 36.7% for the three and nine months ended September 30, ~~2016, respectively, compared to 36.9% and 37.4% for~~2016. For the three ~~and nine~~ months ended September 30, ~~2015, respectively. For the three and nine months ended September 30, 2016,~~2017, the gross profit percentage ~~decreased~~increased primarily due to ~~a decrease~~an increase in product margins. The increase was offset by an unfavorable inventory obsolescence provision in the U.S. and increased freight costs. The increase in freight and warehouse costs was primarily due to increased units shipped in both segments. For the nine months ended September 30, ~~2016,~~2017, the ~~decrease was also attributable~~gross profit percentage increased primarily due to higher freight costs. The decrease was partially offset by a favorable inventory obsolescence provision in both periods in the U.S. For the nine months ended September 30, 2016, the QVC-International decrease inincreased product ~~margins was partially offset by improved product margins in Japan.~~margins.

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Operating expenses

QVC's operating expenses are principally comprised of commissions, order processing and customer service expenses, credit card processing fees and telecommunications expenses. Operating expenses ~~decreased $4~~increased $5 million or ~~2.8%~~3.6% and ~~increased $4~~decreased $9 million or ~~0.9%~~2.1% for the three and nine months ended September 30, ~~2016~~2017 as compared to the three and nine months ended September 30, ~~2015,~~2016, respectively.

For the three months ended September 30, ~~2016,~~2017, operating expenses ~~decreased~~increased primarily due to a $2$3 million ~~decrease~~increase in ~~customer service expenses~~credit card processing fees and a $3 million increase in commissions offset by $1 million ~~decrease in both credit~~from favorable foreign currency exchange rates. Credit card fees and commissions partially offset by $2 million in unfavorable foreign currency rates mainly in Japan offset partially by the U.K. The decrease in customer service expense was mainly due to a decrease in calls handled internationally. The decrease in credit card fees wasincreased primarily due to the ~~decrease~~increase in ~~sales for the period in the~~ U.S. ~~The decrease in commissions expense was primarily due~~sales. In addition, credit card interchange processing fees have increased compared to the ~~decrease in sales on commission in the U.S. partially offset by increased carriage in Japan and the U.K.~~three months ended September 30, 2016.

For the nine months ended September 30, ~~2016,~~2017 operating expenses ~~increased~~decreased primarily due to $3a $6 million decrease in ~~unfavorable~~customer service expenses related to lower call volumes in the U.S., favorable foreign currency exchange rates ~~mainly~~and offset somewhat by higher credit card fees primarily in ~~Japan offset partially by~~ the ~~U.K. and a $3 million increase in commissions. The increase in commissions expense was primarily due to increased carriage in Japan and the U.K.~~U.S.

Selling, general and administrative expenses (excluding stock-based compensation)

QVC's ~~SG&A~~selling, general, and administrative expenses (excluding stock-based compensation) include personnel, information technology, provision for doubtful accounts, production costs, credit card income, marketing and advertising expenses. Such expenses ~~decreased $3~~increased $7 million for ~~both~~ the three months ended September 30, 2017, and decreased $43 million for the nine months ended September 30, ~~2016. SG&A~~2017, compared to the same periods in the prior year. Such expenses increased from ~~8.3%~~8.4% to ~~8.4%~~8.5% and decreased from ~~8.6%~~8.4% to ~~8.4%~~7.8%, as a percentage of net revenue, as compared to the three and nine ~~month periods~~months ended September 30, ~~2015, respectively, as a result of a variety of reasons.~~2016, respectively.

For the three months ended September 30, ~~2016,~~2017, the ~~decrease~~increase was primarily due to ~~reduced~~an increase in personnel costs of ~~approximately $12~~$10 million and an increase ~~of credit card income of $2 million which was partially offset by increases~~ in ~~software expense~~franchise taxes of $4 million ~~marketing~~offset by a decrease in bad debt expense of ~~$3 million, external services of $3~~$5 million and ~~approximately $1~~a $2 million decrease in ~~unfavorable foreign currency rates mainly in Japan partially offset by the U.K.~~marketing expenses. The ~~decrease~~increase in personnel costs was primarily due to ~~a decrease~~an increase in bonus ~~of $14 million and benefits of $7 million which was partially~~expense offset by decreases in severance ~~of approximately $9 million~~expense and salaries and wages, mostly in the U.S. ~~Credit card income increased~~The decrease in bad debt expense was primarily related to lower default rates experienced from prior periods mostly associated with the Easy-Pay program in the U.S. The decrease in marketing expenses is primarily related to discontinuing the naming rights to the Chiba Marine Stadium in Japan.

For the nine months ended September 30, 2017, the decrease was primarily due to ~~more~~a decrease in bad debt expense of $26 million, $8 million from favorable ~~economics~~foreign currency rates, a $7 million increase in credit card income, a $4 million decrease in marketing expenses, and a $5 million decrease in various other expenses offset by an increase in personnel cost of $7 million. The decrease in bad debt expense was primarily related to lower default rates experienced from prior periods mostly associated with the ~~Q Card portfolio~~Easy-Pay program in the U.S. The increase in ~~software expense~~credit card income was ~~mostly~~ due to ~~software licensing and software maintenance. Marketing expense increased~~the favorable economics of the QVC-branded credit card portfolio in the U.S. The decrease in marketing expenses is primarily ~~due to cancellation costs~~ related to discontinuing the naming rights to the Chiba Marine Stadium in Japan. The increase in ~~external services was primarily due to internal control enhancements and the establishment of a global business service center.~~

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For the nine months ended September 30, 2016, the decrease was primarily due to reduced personnel costs of $40 million and an increase in credit card income of $4 million which was offset partially by increases in bad debt expense of $20 million, software expense of $7 million, $6 million for both external services and marketing expense and approximately $2 million in unfavorable foreign currency rates mainly in Japan offset partially by the U.K. The decrease in personnel costs was primarily due to ~~a decrease in bonuses of $30 million and wages and benefits of $11 million mostly in the U.S. The increase in bad debt expense was primarily related to~~ an increase in ~~Easy-Pay sales penetration~~bonus expense offset by decreases in severance expenses and ~~higher default rates experienced related to the Easy-Pay program in the U.S. The increase in software expense was mainly due to an increase in software licensing~~salaries and software maintenance. The increase in external services was primarily due to internal control enhancements, outside legal services and the establishment of a global business service center. Marketing expense increased primarily due to cancellation costs related to discontinuing the naming rights to the Chiba Marine Stadium in Japan and France launch marketing expenses.wages.

Stock-based compensation

Stock-based compensation includes compensation related to options and restricted stock units granted ~~for shares of Liberty's tracking stock~~ to certain officers and employees. QVC recorded $8$9 million and $9$8 million of stock-based compensation expense for the three months ended September 30, 2017 and 2016, respectively, and ~~2015, respectively,~~$23 million and $24 million of stock-based compensation expense for ~~each of~~ the nine months ended September 30, 2017 and 2016, ~~and 2015,~~ respectively.

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Depreciation and amortization

Depreciation and amortization consisted of the following:


	Three months ended September 30,			Nine months ended September 30,		Three months ended September 30,			Nine months ended September 30,
(in millions)	2016		2015	2016	2015	2017		2016	2017	2016
Affiliate agreements	$	37	36	110	109	$	25	37	98	110
Customer relationships	43		43	128	128	28		43	112	128
Acquisition related amortization	80		79	238	237	53		80	210	238
Property and equipment	38		33	103	101	38		38	116	103
Software amortization	26		19	73	72	24		26	70	73
Channel placement amortization and related expenses	10		10	34	32	14		10	44	34
Total depreciation and amortization	$	154	141	448	442	$	129	154	440	448

For the three and nine months ended September 30, ~~2016, total depreciation and~~2017, acquisition related amortization ~~increased~~expense decreased primarily due to ~~expense~~the end of the useful lives of certain affiliate agreements and customer relationships established at the time of Liberty’s acquisition of QVC in 2003. This was offset by an increase in channel placement amortization related to the ~~additions at~~addition of Beauty iQ in the ~~west coast~~U.S. For the nine months ended September 30, 2017, the amortization decrease mentioned above was offset by an increase in depreciation related to the addition of the California distribution ~~center.~~center in the third quarter of 2016.

Equity in losses of investee

The losses were associated with our joint venture in China that is accounted for as an equity method investment.

Interest expense, net

For the three and nine months ended September 30, ~~2016,~~2017, consolidated interest expense, net increased $3$2 million or ~~6.1%~~3.8% and increased $1$6 million or ~~0.6%~~3.8%, respectively, as compared to the corresponding period in the prior year. For the three and nine months ended September 30, 2017, interest expense, net increased primarily due to income related to the ineffective portion of a hedge of a net investment in the prior year.

Foreign currency gain (loss)

Certain loans between QVC and its subsidiaries are deemed to be short-term in nature, and accordingly, the translation of these loans is recorded in the accompanying condensed consolidated statements of operations. For the three and nine months ended September 30, ~~2016,~~2017, the change in foreign currency gain (loss) was also due to variances in interest and operating payables balances between QVC and its international subsidiaries denominated in the currency of the subsidiary and the effects of currency exchange rate changes on those balances.

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~~Loss on extinguishment of debt~~

Income taxes

Our effective tax rate was ~~36.3%~~25.9% and ~~36.8%~~33.2% for the three and nine months ended September 30, ~~2016, respectively, and our~~2017. These rates differed from the U.S. federal income tax rate of 35% primarily due to the impact of discrete permanent differences related to foreign currency losses realized for tax purposes offset somewhat by state tax expense. Our effective tax rate for the three and nine months ended September 30, ~~2015~~2016 was ~~35.8%~~36.3% and ~~37.7%~~36.8%, respectively. These rates differ from the U.S. federal income tax rate of 35.0% primarily due to state tax expense.

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Adjusted Operating Income before Depreciation and Amortization (Adjusted OIBDA)

QVC defines Adjusted OIBDA as net revenue less cost of goods sold, operating expenses and selling, general and administrative expenses (excluding stock-based compensation). QVC's chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate the businesses and make decisions about allocating resources among the businesses. QVC believes that this is an important indicator of the operational strength and performance of the businesses, including the ability to service debt and fund capital expenditures. In addition, this measure allows QVC to view operating results, perform analytical comparisons and perform benchmarking among its businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation, amortization and stock-based compensation that are included in the measurement of operating income pursuant to U.S. generally accepted accounting principles ("U.S. GAAP"). Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.

The primary material limitations associated with the use of Adjusted OIBDA as compared to U.S. GAAP results are (i) it may not be comparable to similarly titled measures used by other companies in the industry, and (ii) it excludes financial information that some may consider important in evaluating QVC's performance. QVC compensates for these limitations by providing disclosure of the difference between Adjusted OIBDA and U.S. GAAP results, including providing a reconciliation of Adjusted OIBDA to U.S. GAAP results, to enable investors to perform their own analysis of QVC's operating results. ~~Refer~~See to ~~Note~~note 11 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to income before income taxes.

Seasonality

QVC's business is seasonal due to a higher volume of sales in the fourth calendar quarter related to year-end holiday shopping. In recent years, QVC has earned, on average, between 22% and ~~23%~~24% of its revenue in each of the first three quarters of the year and between 30% and 32% of its revenue in the fourth quarter of the year.

Financial Position, Liquidity and Capital Resources

General

Historically, QVC's primary sources of cash have been cash provided by operating activities and borrowings. In general, QVC uses this cash to fund its operations, make capital purchases, make payments to Liberty, make interest payments and minimize QVC's outstanding senior secured credit facility balance.

As of September 30, ~~2016,~~2017, substantially all of QVC's cash and cash equivalents were invested in AAA rated money market funds and time deposits with banks rated equal to or above A.

Senior Secured Notes

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Senior Secured Credit Facility

On June 23, 2016, QVC entered into ~~a third amended~~the Third Amended and ~~restated senior secured credit agreement~~Restated Credit Agreement with zulily as borrowers (collectively, the “Borrowers”), which is a multi-currency facility that provides for a $2.65 billion revolving credit facility with a $300 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or zulily with an additional $50 million sub-limit for standby letters of credit. The remaining $2.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA for the most recent four fiscal quarter periods (the ~~“Consolidated~~“Combined Consolidated Leverage Ratio”). Borrowings that are ~~LIBOR~~London Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% ~~and1.75%~~and 1.75% depending on the Borrowers’ ~~combined consolidated leverage ratio.~~Combined Consolidated Leverage Ratio. Because the calculation of the ~~consolidated leverage ratio~~Combined Consolidated Leverage Ratio was revised to include zulily, the effective interest rate margins, on the date that the Third Amended and Restated Credit Agreement was entered into, decreased from the interest rate margins under the previous bank credit facility. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if zulily ceases to be controlled by Liberty, ~~Interactive Corporation,~~ all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020. Any amounts prepaid on the revolving facility may be reborrowed. Payment of loans may be accelerated following certain customary events of default. ~~The senior secured credit facility is secured by the capital stock of QVC.~~

QVC had ~~$1,024.8~~$950 million, including the remaining portion of the $400 million tranche that zulily may also borrow on, available under the terms of the ~~senior secured credit facility~~Third Amended and Restated Credit Agreement at September 30, ~~2016.~~2017. The interest rate on the ~~senior secured credit facility~~Third Amended and Restated Credit Agreement was ~~1.9%~~2.7% at September 30, ~~2016.~~2017.

The purpose of the amendment was to, among other things, extend the maturity of ~~our~~the Company's senior secured credit facility, ~~to June 23, 2021,~~ provide zulily the opportunity to borrow on the senior secured credit facility (see ~~Note~~notes 1 and 6 to the accompanying condensed consolidated financial statements), and lower the interest rate on borrowings. The payment and performance of the Borrowers’ obligations under the Third Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement). Further, the borrowings under the Third Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of the capital stock of QVC. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and zulily are also guaranteed by each of zulily’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of zulily’s equity interests.

The Third Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company and zulily and each of their respective restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; and limiting the Company’s consolidated leverage ratio and the Borrowers’ ~~combined consolidated leverage ratio which is defined in the senior secured credit facility as the ratio of~~Combined Consolidated ~~Total Debt to Consolidated EBITDA for the most recent four fiscal quarter period.~~Leverage Ratio.

Other Debt Related Information

QVC was in compliance with all of its debt covenants at September 30, ~~2016.~~2017.

During the quarter, there were no significant changes to QVC's debt credit ratings.

There are no restrictions under ~~the~~QVC's debt agreements on QVC's ability to pay dividends or make other restricted payments if QVC is not in default on its senior secured notes or senior secured credit facility, and as long as both QVC's consolidated leverage ratio, and a ~~combined consolidated leverage ratio~~Combined Consolidated Leverage Ratio for both QVC and zulily, would be no greater than 3.5 to 1.0. As a result, Liberty will, in many instances, be permitted to rely on QVC's cash flow for servicing Liberty's debt and for other purposes, including repurchases of Liberty's common stock, or to fund acquisitions or other operational requirements of Liberty and its subsidiaries. These events may deplete QVC's equity or require QVC to borrow under the senior secured credit facility, increasing QVC's leverage and decreasing liquidity. QVC has made significant distributions to Liberty in the past.

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Interest Rate Swap Arrangements

~~On June 15,~~During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement does not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, ~~2016,~~2017, the fair value of the swap instrument was in a net asset position of ~~less than $1~~approximately $2 million which was included in other noncurrent assets. ~~A 1% change in the one-month U.S. Libor rate (floating portion of the interest rate swap) will result in a change in the value of the swap instrument less than $1 million.~~

Additional Cash Flow Information

During the nine months ended September 30, 2017, QVC's primary uses of cash were $1,791 million of principal payments on debt and capital lease obligations, $491 million of dividend payments to Liberty, $118 million of capital and television distribution rights expenditures and $22 million in dividend payments from QVC-Japan to Mitsui. These uses of cash were funded primarily with $1,574 million of principal borrowings from the senior secured credit facility and $907 million of cash provided by operating activities. As of September 30, 2017, QVC's cash and cash equivalents balance (excluding restricted cash) was $343 million.

During the nine months ended September 30, 2016, QVC's primary uses of cash were $1,300 million of principal payments on debt and capital lease obligations, $427 million of dividends to Liberty, $148 million of capital and ~~cable and satellite~~ television distribution rights expenditures and $21 million in dividend payments from QVC-Japan to Mitsui. These uses of cash were funded primarily with $1,048 million of principal borrowings from the senior secured credit facility and $849 million of cash provided by operating activities. As of September 30, 2016, QVC's cash and cash equivalents balance (excluding restricted cash) was $319 million.

During the nine months ended September 30, 2015, QVC's primary uses of cash were $1,565 million of principal payments on debt and capital lease obligations, $444 million of dividends to Liberty, $180 million of capital and cable and satellite television distribution rights expenditures, $20 million in dividend payments from QVC-Japan to Mitsui, and $18 million of bond premium fees. These uses of cash were funded primarily with $1,470 million of principal borrowings from the senior secured credit facility and $793 million of cash provided by operating activities. As of September 30, 2015, QVC's cash and cash equivalents balance (excluding restricted cash) was $363 million.

The change in cash provided by operating activities for the nine months ended September 30, ~~2016~~2017 compared to the previous year was primarily due to ~~variances~~the increase in ~~accounts receivable~~net income, excluding non-cash charges such as depreciation, amortization, and ~~inventories, offset~~stock-based compensation. Cash provided by ~~variances~~operating activities is also subject to changes in ~~accrued liabilities, accounts payable~~working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory management and prepaid expenses. The variance in accounts receivable is primarily due to decreases in the Easy-Pay receivable balance. The variance in inventories is primarily due to the level of increases in inventory balances globally. The variances in accrued liabilities and accounts payable balances are primarily due tocategory expansion, the timing of cash receipts and payments, ~~to vendors. The variance~~vendor payment terms, and fluctuations in ~~prepaid expenses is primarily due to increases in prepaid contracts in the U.S.~~foreign exchange rates.

As of September 30, ~~2016, $198~~2017, $263 million of the ~~$319~~$343 million in cash and cash equivalents was held by foreign subsidiaries. Cash in foreign subsidiaries is ~~generally accessible, but certain~~available for domestic purposes with no significant tax consequences ~~may reduce~~upon repatriation to the ~~net amount of cash we are able to utilize for~~ U.S. ~~purposes.~~ QVC accrues taxes on the unremitted earnings of its international subsidiaries. ~~QVC-Japan holds more than one-half~~Approximately 60% of ~~the~~this foreign cash balance aswas that of ~~September 30, 2016.~~QVC-Japan. QVC owns 60% of QVC-Japan and shares all profits and losses with the 40% minority interest holder, Mitsui. We believe that we currently have appropriate legal structures in place to repatriate foreign cash as tax-efficiently as possible and meet the business needs of QVC.

Other

Capital expenditures spending in ~~2016 are~~2017 is expected to be between ~~$185~~$150 and ~~$195~~$160 million, including ~~$140~~$83 million already expended.

Refer to the chart under the "Off-balance Sheet Arrangements and Aggregate Contractual Obligations" section below for additional information concerning the amount and timing of expected future payments under QVC's contractual obligations at September 30, ~~2016.~~2017.

QVC has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible QVC may incur losses upon the conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, that may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.

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On June 23, 2016, the U.K. held a referendum in which voters approved an exit from the European Union ("E.U."), commonly referred to as “Brexit”. As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes may cause disruptions to and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations.

Off-balance Sheet Arrangements and Aggregate Contractual Obligations

Information concerning the amount and timing of required payments, both accrued and off-balance sheet, under our contractual obligations at September 30, ~~2016~~2017 is summarized below:


	Payments due by period								Payments due by period
(in millions)	Remainder of 2016		2017	2018	2019	2020	Thereafter	Total	Remainder of 2017		2018	2019	2020	2021	Thereafter	Total
Long-term debt (1)	$	—	—	—	400	—	4,720	5,120	$	—	—	400	—	1,390	3,150	4,940
Interest payments (2)	29		200	200	193	187	1,078	1,887	31		207	200	195	173	908	1,714
Capital lease obligations (including imputed interest)	3		12	15	15	11	23	79	4		16	16	13	12	18	79
Operating lease obligations	5		20	17	14	10	80	146	5		18	14	11	9	71	128
Build to suit lease	—		5	6	6	6	73	96	1		6	6	6	6	67	92

(1) Amounts exclude capital lease obligations and the issue discounts on ~~the~~our 3.125%, 4.375%, ~~4.45%~~4.85%, ~~4.85%~~4.45%, 5.45% and 5.95% Senior Secured Notes. Additionally, the presentation assumes there is no amount outstanding on the $140 million commitment under our senior secured credit facility that matures on March 9, 2020.

(2) Amounts (i) are based on the terms of QVC's senior secured credit facility and senior secured notes, (ii) assumes the interest rates on the floating rate debt remain constant at the rates in effect as of September 30, ~~2016,~~2017, (iii) assumes that our existing debt is repaid at maturity and (iv) excludes capital lease obligations.

Our purchase obligations did not materially change as of September 30, ~~2016.~~2017.

Recent Accounting Pronouncements

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In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption will have a material effect on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the measurement for impairment by calculating the difference between the carrying amount and the fair value of the reporting unit. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption will have a material effect on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, to provide clarity to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company does not expect the adoption will have a material effect on its condensed consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

QVC is exposed to market risk in the normal course of business due to ongoing investing and financial activities and the conduct of operations by subsidiaries in different foreign countries. Market risk refers to the risk of loss arising from adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. QVC has established procedures and internal processes governing the management of market risks and the use of financial instruments to manage exposure to such risks.

Interest rate risk

QVC is exposed to changes in interest rates primarily as a result of borrowing activities. Over the long-term, QVC manages the exposure to interest rates by maintaining what QVC believes is an appropriate mix of fixed and variable rate debt.

The table below summarizes the Company’s debt obligations, related interest rates and fair value of debt at September 30, ~~2016:~~2017:


(in millions, except percentages)	2016			2017		2018		2019		2020		Thereafter		Total		Fair Value	Remainder of 2017			2018		2019		2020		2021		Thereafter		Total		Fair Value
Fixed rate debt (1)	$	—		—		—		400		—		3,150		3,550		3,589	$	—		—		400		—		—		3,150		3,550		3,654
Weighted average interest rate on fixed rate debt	—		%	—	%	—	%	3.1	%	—	%	4.9	%	4.7	%	N/A	—		%	—	%	3.1	%	—	%	—	%	4.9	%	4.7	%	N/A
Variable rate debt	$	—		—		—		—		—		1,570		1,570		1,570	$	—		—		—		—		1,390		—		1,390		1,390
Average interest rate on variable rate debt	—		%	—	%	—	%	—	%	—	%	1.9	%	1.9	%	N/A	—		%	—	%	—	%	—	%	2.7	%	—	%	2.7	%	N/A

(1) Amounts exclude capital lease and build to suit lease obligations and the issue discounts on ~~the~~our 3.125%, 4.375%, ~~4.45%~~4.85%, ~~4.85%~~4.45%, 5.45% and 5.95% Senior Secured Notes. Additionally, the presentation assumes there is no amount outstanding on the $140 million commitment under our senior secured credit facility that matures on March 9, 2020.

N/A - Not applicable.

~~On June 15,~~During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement does not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. At September 30, ~~2016,~~2017, the fair value of the swap instrument was in a net asset position of ~~less than $1~~approximately $2 million which was included in other noncurrent assets. A 1% change in the one-month U.S. ~~Libor~~LIBOR rate (floating portion of the interest rate swap) ~~will~~would result in a change in the value of the swap instrument of less than $1 million.

Foreign currency exchange rate risk

QVC is exposed to foreign exchange rate fluctuations related to the monetary assets and liabilities and the financial results of its foreign subsidiaries. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated into U.S. Dollars at period-end exchange rates, and the statements of operations are translated at the average exchange rate for the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. Dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded in other comprehensive income as a separate component of stockholder's equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses, which are reflected in income as unrealized (based on period-end transactions) or realized upon settlement of the transactions. Cash flows from operations in foreign countries are translated at the average rate for the period. Accordingly, QVC may experience economic loss and a negative impact on earnings and equity with respect to its holdings solely as a result of foreign currency exchange rate fluctuations. QVC's reported Adjusted OIBDA for the three and nine ~~month periods~~months ended September 30, ~~2016~~2017 would have been impacted by approximately $1 million and $3 million, respectively, for every 1% change in foreign currency exchange rates relative to the U.S. Dollar.

The ~~credit facility~~Third Amended and Restated Credit Agreement provides QVC with the ability to borrow in multiple currencies. This allows QVC to somewhat mitigate foreign currency exchange rate risks. As of September 30, ~~2016,~~2017, no borrowings in foreign currencies were outstanding.

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Effective September 15, 2016, QVC entered into a hedge of a net investment in a foreign subsidiary and the value of the hedge is affected by changes in the value of the Euro. A 1% change in the value of the Euro will result in a change in the value of this hedge transaction of approximately $6 million.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and its principal accounting and financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this ~~Quarterly Report.~~report. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were effective as of September 30, ~~2016 with~~2017 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the ~~consideration of~~Exchange Act is recorded, processed, summarized and reported within the ~~material weakness~~time periods specified in ~~our internal control over financial reporting as discussed in more detail in our Form 10-K for~~ the year ended December 31, 2015 under Part II, Item 9A. Management has continued to monitor the implementation of the remediation plan described in our 10-K for the year ended December 31, 2015, which has been updated below.Securities and Exchange Commission's rules and forms.

Changes in Internal Control Over Financial Reporting

During the third quarter of 2016, we continued to review the design of our controls, made adjustments and continued implementing controls to alleviate the noted control deficiencies. Other than these items, thereThere has been no change in the Company's internal control over financial reporting that occurred during the three months ended September 30, ~~2016~~2017 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

~~Remediation Plan for Material Weakness in Internal Control Over Financial Reporting~~

In response to the material weakness identified in Management’s Report on Internal Control Over Financial Reporting as set forth in Part II, Item 9A in our Form 10-K for the year ended December 31, 2015, the Company developed a plan with oversight from the Audit Committee of the Board of Directors of Liberty to remediate the material weakness. The remediation efforts implemented include the following:

A monitoring control was established to identify inappropriate user access and incompatible or conflicting functions. The work of the identified individuals, with such duties, was then reviewed to determine whether they inappropriately utilized the incompatible or conflicting functions to perform any inappropriate activity.

~~Monitoring controls over manual and post-close journal entries were enhanced to ensure that there is adequate oversight over such entries.~~

~~Additionally, procedures were established to validate the completeness and accuracy of reports used in the financial reporting process to support control activities.~~

The Company believes the foregoing efforts effectively remediated the material weakness described in “Management's Report on Internal Control Over Financial Reporting” after the assessment date and prior to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2015. However, because the reliability of the internal control process requires repeatable execution, the successful on-going remediation of this material weakness will require on-going review and evidence of effectiveness.

Additionally, the Company intends to continue to monitor the incompatible or conflicting roles and related end user access to determine whether additional adjustments, to reduce or eliminate the occurrences of segregation of duties issues, should be made to such roles. This could further reduce the reliance on the monitoring controls identified.

I-44

Table of Contents

PART II

Item 6. Exhibits

(a) Exhibits

Listed below are the exhibits which are filed as a part of this ~~Quarterly~~ Report (according to the number assigned to them in Item 601 of Regulation S-K):



31.1		Rule 13a-14(a)/15d-14(a) Certification*
31.2		Rule 13a-14(a)/15d-14(a) Certification*
32.1		Section 1350 Certification**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.LAB		XBRL Taxonomy Label Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*
101.DEF		XBRL Taxonomy Definition Document*

*Filed herewith.

**Furnished herewith.

II-1

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

QVC, Inc.



Date: November ~~8, 2016~~9, 2017	By:/s/ MICHAEL A. GEORGE
	Michael A. George
	President and Chief Executive Officer (Principal Executive Officer)

Date: November ~~8, 2016~~9, 2017	By:/s/ THADDEUS J. JASTRZEBSKI
	Thaddeus J. Jastrzebski
	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

II-2

~~Listed below are the exhibits which are filed as a part of this Quarterly Report (according to the number assigned to them in Item 601 of Regulation S-K):~~



~~31.1~~		Rule 13a-14(a)/15d-14(a) Certification*
~~31.2~~		Rule 13a-14(a)/15d-14(a) Certification*
~~32.1~~		Section 1350 Certification**
~~101.INS~~		XBRL Instance Document*
~~101.SCH~~		XBRL Taxonomy Extension Schema Document*
~~101.CAL~~		XBRL Taxonomy Calculation Linkbase Document*
~~101.LAB~~		XBRL Taxonomy Label Linkbase Document*
~~101.PRE~~		XBRL Taxonomy Presentation Linkbase Document*
~~101.DEF~~		XBRL Taxonomy Definition Document*

* Filed herewith.

**Furnished herewith.

~~II-3~~



	Part I	Page

Item 1.	Financial Statements (unaudited)	I-1
	Condensed Consolidated Balance Sheets	I-1
	Condensed Consolidated Statements of Operations	I-2
	Condensed Consolidated Statements of Comprehensive Income	I-3
	Condensed Consolidated Statements of Cash Flows	I-4
	Condensed Consolidated Statement of Equity	I-5
	Notes to the ~~Unaudited~~ Condensed Consolidated Financial Statements (unaudited)	I-6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	I-30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~I-42~~I-43
Item 4.	Controls and Procedures	I-44

	Part II

Item 6.	Exhibits	II-1
	Signatures	II-2
	~~Exhibit Index~~	~~II-3~~